A report on the
Motor Car Traders
Prepared by Noel Pullen MP with the
assistance of Consumer Affairs Victoria
Foreword – John Lenders MP,
Minister for Consumer
In March 2004, I asked Mr If you would like to comment on any of Mr Pullen’s
Noel Pullen, Member for recommendations or any of the issues raised in the
Higinbotham, to undertake report, please address your feedback to the details below.
a series of consultations on The closing date for receipt of feedback is 28 February
the operation of the Motor 2005.
Car Traders Act 1986. Since
Motor Car Traders Act consultations
then, Mr Pullen has met
Consumer Affairs Victoria
with a large number of
GPO Box 123A
Melbourne Vic 3001
industry and consumer
representatives and or
individual traders and consumers. Mr Pullen has now by email to email@example.com
completed his consultations and has reported to me on
the issues raised by participants.
It has been some time since the Act was last reviewed
and Mr Pullen’s consultations have provided a very
useful insight into the issues facing the industry and
how the Act is currently operating. The motor vehicle
JOHN LENDERS MP
retail industry touches a large number of consumers,
Minister for Consumer Affairs
involves a high level of expenditure and makes a
significant contribution to Victoria’s economy.
Therefore, it is important to ensure the regulatory
framework is effective and efficient and meets the needs
of industry and consumers.
As a follow up to Mr Pullen’s consultations, I will be
preparing a government response to the report and the
recommendations contained therein. In preparing this
response, I will be consulting with other government
agencies that have not yet been consulted on the issues
raised, including VicRoads, Victoria Police and the State
In order to ensure that the government response and
any ensuing legislative change reflects the best
regulatory framework, I am now releasing Mr Pullen’s
report for public comment.
Motor Car Traders Act Consultations Report > i
Foreword – Noel Pullen MP
In March 2004, the Minister To give participants the opportunity to freely air their
for Consumer Affairs, John views no formal terms of reference for the consultations
Lenders asked me to were devised or required. The intention of the
conduct a series of consultations was to examine the existing legislation
consultations on the motor and identify any gaps. This Report represents the views
car trading industry on his of participants in the consultations and many of the
behalf with particular issues addressed in were raised at each of the focus group
emphasis on the Motor Car meetings.
Traders Act 1986 and the
The recommendations contained in the report concern
Motor Car Traders
proposals for both administrative and legislative change.
Owing to the complex nature of the industry and the
The Bracks Government is committed to seeing delicate balance between over regulation and adequate
Victoria’s vehicle industry develop and thrive while consumer protection, I felt it was premature to make a
protecting the rights of consumers. final determination on some of the issues raised without
further research and consultation.
The consultation process commenced following a Motor
Car Trader forum held in March 2004 that was jointly I would like to single out the issue of ‘lemon laws’,
sponsored by Consumer Affairs Victoria (CAV) and the which was raised by a number of consumers, the RACV
Victorian Automobile Chamber of Commerce (VACC). and the Consumer Law Centre. I consider this worthy of
The forum was known as “Driving a better industry”. further consideration not only for motor vehicles but
also possibly for other products.
Representatives at the Forum included the VACC,
Australian Automobile Dealers Association, Motor Car I would like to thank the Minister for the opportunity
Traders Guarantee Fund Claims Committee accorded to me and all the participants from across
(MCTGFCC), RACV, VicRoads, Victoria Police and other Victoria who presented their many and various views
interested parties. about the legislation and administration of the licensing
scheme. Their input has been considerable and valuable.
As part of my consultation across Victoria, focus group
This Report reflects the views of those participants and I
meetings were held in Preston, Frankston, Ringwood,
recommend that it be publicly released for comment.
Geelong, Bendigo, Wodonga, Traralgon, and
Warrnambool. I also met with a range of stakeholders on
an individual basis, including the VACC, Business
Licensing Authority, MCTGFCC, RACV, Consumer Law
Centre, and a number of individual consumers and
traders. Written submissions were also received. NOEL PULLEN MP
Member for Higinbotham
Motor Car Traders Act Consultations Report > iii
Executive summary...................................................vii 7 Interaction with government agencies ..............59
7.1 Consumer Affairs Victoria and the
Recommendations ...................................................xiii Business Licensing Authority ........................59
1 Introduction ..............................................................1 7.3 State Revenue Office.......................................63
1.1 Background to the Consultations ....................1
1.2 The consultation process...................................1 8 Motor Car Traders Guarantee Fund ....................65
1.3 Overview of the industry ..................................2 8.1 Issues raised during the consultations .........67
2 Current regulatory framework ..............................3 9 Dispute resolution .................................................73
2.1 Objectives of the legislation.............................3
2.2 Achieving these objectives – the
2.3 The regulatory framework and
3 Participation in the industry .................................7
3.1 An ‘open’ licensing scheme .............................7
3.2 Licence categories .............................................8
3.3 Licence application and
3.4 Restrictions on employees ............................18
3.5 Processing of licence applications...............21
4 Regulation of conduct ..........................................23
5 Application of the Act to auctions,
wholesalers and brokers .......................................43
5.1 Auctions ...........................................................44
5.2 Wholesale licensees ........................................49
6 Compliance and enforcement.............................53
6.1 Unlicensed traders ..........................................53
6.2 Compliance with the Act by licensed
motor car traders ...........................................55
6.3 Consumer Affairs Victoria’s
Motor Car Traders Act Consultations Report > v
The primary pieces of legislation governing the motor
car trading industry are the Motor Car Traders Act 1986
Outline of the Report
and the Motor Car Traders Regulations 1998.
The purpose of the regulation governing motor car
traders is to establish an efficient and equitable licensing
scheme in order to protect the rights of consumers. The The purposes of the consultation, the consultation
legislation is designed to address an ‘information process and overview of the industry are outlined in
asymmetry’ or an imbalance of information between section 1 of the report. The current regulatory
traders and consumers, which is inherent in motor car framework is described in section 2.
trading transactions. In establishing the licensing scheme, the Act has the
To address this asymmetry and achieve its aim of anti-competitive effect of restricting participation in the
protecting consumers, the Act establishes a licensing industry to those who have obtained a licence. However,
scheme for motor car traders; imposes restrictions on a National Competition Policy review of the Act, which
traders’ conduct; and establishes a fund to provide was completed in 1998, found that the legislation was
compensation for consumers who suffer loss as a result not overly restrictive and the benefits outweighed the
of a motor car traders’ conduct. costs. In fact, many traders who participated in the
consultations said licences were too easy to obtain. They
As a result of industry concerns in relation to the
said the Business Licensing Authority, which administers
operation of the Act and Regulations, and in recognition
the licensing scheme, did not apply the refusal criteria
of changes that have occurred in the marketplace since
specified in the Act strictly enough. In particular, traders
the legislation was last reviewed, the Minister for
said there should be more stringent checking of
Consumer Affairs initiated consultations aimed at
financials and knowledge of the Act. Many participants
assessing the effectiveness of the existing regime. The
also said there should be greater restrictions on
consultations involved peak industry bodies, consumers
employees in the industry, with some even proposing the
and consumer representatives, and individual traders.
introduction of a licensing scheme. The licensing scheme
The consultations were led by Mr Noel Pullen, MP and
and its administration are discussed in section 3.
this report outlines his findings.
The Act and Regulations contain a number of
requirements affecting business conduct and contractual
relations between sellers (mainly licensees) and buyers of
motor vehicles. These provisions include restrictions on
advertising, record keeping and contractual obligations
such as cooling off periods and statutory warranties.
These conduct requirements are the subject of section 4.
Motor Car Traders Act Consultations Report > vii
Some of the restrictions attracted a lot of debate at the If consumers understand the protections that do or do
consultations, particularly the Form 7, which requires not apply in relation to these transactions compared
traders to display notices on used vehicles offered for with protections afforded by dealers, then an increase in
sale (including previous owners details), and the dealings these areas of the trade may not be of concern. However,
book, in which traders are required to keep a record of if, as traders allege, these areas of the trade have emerged
all transactions. Consumer representatives also in order to circumvent the Act, and consumers do not
commented on how these conduct requirements understand their different rights, then the legislation
imposed on traders could be better communicated to may no longer be achieving its aims.
consumers so they understood the protections afforded
Most traders argued that the growth of brokers was
them by the Act.
particularly worrying as the rights of consumers when
Not all of the conduct requirements apply to all dealing with brokers was often unclear. Many
licensees with an auction endorsement or a wholesale participants suggested that the law, and the existing
condition, and they generally do not apply to private licence framework, should be updated to encompass
sales. Many participants expressed concern that most these new practices, remove the current loopholes and
consumers no longer benefited from the protections ensure consumer protection.
under the Act due to the sharp increase in private sales1
In addition to criticism that auctions and brokers were
and growth in auctions and brokers where consumers
circumventing the law, traders also expressed concern
may not have the same protection as if they trade with
with the current level of unlicensed trading, or
‘backyarding’ as it is commonly referred to. Apart from
Auctions, wholesalers and brokers were a major topic of an across the board criticism that Consumer Affairs
discussion in each of the focus group meetings and one- Victoria was not doing enough there were also more
on-one meetings with industry participants and specific issues raised relating to Consumer Affairs
representatives and the exemptions applying to these Victoria’s enforcement strategy. Among these was a
areas of the trade were heavily criticised. These issues are perception that Consumer Affairs Victoria’s enforcement
outlined in section 5. activity was unfairly biased towards them rather than
unlicensed activity because they were ‘easy targets’.
There was a strong suggestion coming out of the
Traders also suggested a number of ways in which they
consultations that the increase in auction sales and
thought enforcement of the Act could be improved.
brokers was due to a deliberate attempt by traders to
Enforcement of the legislation is discussed in section 6.
circumvent consumer rights and reduce compliance costs.
A major theme of the consultations was traders’
Of course, it is also possible that traders’ criticism of the
interaction with government agencies, including the
exemptions applying to wholesalers and auctions merely
Business Licensing Authority, Consumer Affairs Victoria
reflects traders’ dislike of the competition that these
and VicRoads. Participants commented that they did not
areas of the trade represent. Rather than a deliberate
fully understand the areas of responsibility of these
attempt to reduce consumer protection, it is possible
agencies and were unsure who to contact regarding
that the increase in brokers and auctions is in response
specific enquiries. A common remark was that the
to a changing marketplace and an increase in demand
Business Licensing Authority and Consumer Affairs
for these types of sales. For example, consumers may
Victoria were not accessible to traders, who thought they
purchase at auction rather than through a dealer if they
should be available to provide advice on the licensing
wished to buy an ex-government fleet vehicle. Similarly,
scheme and compliance with the Act. Generally, traders
consumers may use the services of a broker due to the
said that Consumer Affairs Victoria did not
convenience and the greater choice of vehicles available,
communicate with traders enough and often said they
or because they are time and knowledge poor.
wanted ‘more for their money’. Many said what little
contact there was, was usually in the negative context of
compliance and enforcement.
1 The growth in private sales (including unlicensed trading) was said to be a result of the introduction of the GST, which increased
dealer prices and made them less competitive with the private market.
viii > Motor Car Traders Act Consultations Report
Although not directly related to the Act or its
implementation, participants also raised issues relating Issues raised during the
to VicRoads and stamp duty, which is the purview of the consultations
State Revenue Office. These issues and concerns are
noted in the report and it is recommended they be
passed on to the relevant Ministers for consideration. A wide range of issues were raised during the
consultations. The report endeavours to document all
The final two sections of the report (sections 8 & 9)
the views expressed and attempts to highlight the issues
cover the avenues available to consumers who are
that were of most concern to participants. It was never
involved in disputes with motor car traders. Section 8
intended that this report would provide a full analysis of
looks at the Motor Car Traders’ Guarantee Fund, which
the issues raised, nor was there time to do this. That
is established under the Act and provides compensation
said, a number of key themes were evident throughout
to persons who suffer loss by reason of the actions of
the consultations. Some limited analysis is provided in
motor car traders. The primary concerns of traders in
the body of the report in order to prioritise these issues
relation to the Fund were the ability of non-consumers
and to develop recommendations about the future
(particularly VicRoads) to claim on the Fund and the
actions that might be taken to address them. These
perceived lack of accountability of the Fund. To address
issues can be summarised as:
this lack of accountability, traders suggested increased
• restriction of competition
information including revenue and expenditure figures
and details of claims admitted. • clarification of existing legislation
• communication and information provision
Apart from making a claim against the Fund, there are
• enforcement of the legislation
other options available to consumers to assist them
• difficulties in the practical implementation of the
resolve disputes with traders. These include Consumer
Affairs Victoria’s enquiries line and conciliation advice
and services offered by community legal centres and • improvements to consumer protection.
financial counsellors. Not all disputes arise from These issues are summarised below and this summary is
situations under which a claim can be made against the followed by a list of recommended actions that may be
Fund and these other avenues of resolving problems are taken to address them.
quite important. It was argued during the course of the
consultations that the existing dispute resolution
mechanisms available to consumers were inadequate,
and that improvements could be made.
Motor Car Traders Act Consultations Report > ix
Restriction of competition In evaluating any of these potential changes, it is
necessary to consider the Act’s primary objective of
Many suggestions put forward during the consultations
consumer protection and to determine what public
would have the effect of restricting competition in the
benefit would arise from their implementation. In some
industry if they were implemented. Competition is
of the examples put forward, such as the closed licensing
generally seen as beneficial for consumers as it increases
scheme, it is difficult to tell what public benefit would
choice and competitive pressure helps prevent artificial
arise. However, other suggestions, such as the
inflation of prices. Under the National Competition
requirement for applicants to provide a bond, were
Policy principles, any regulation that has an anti-
couched in terms of consumer protection objectives.
competitive effect must be justified by showing that the
Participants often said that undercapitalisation at the
benefits outweigh the costs and that there are no
time of obtaining a licence led to many claims against
alternative and less restrictive ways of achieving the
the Fund and that a bond would reduce these claims.
However, data provided by the Motor Car Traders
The suggestions for regulatory change put forward by Guarantee Fund on claims admitted did not support
participants could have an anti-competitive effect in a these suggestions.
number of ways:
The suggestions that involved the imposition of
• By directly preventing new entrants to the industry restrictions on existing licensees were generally aimed at
– examples include calls for a closed licensing removing current exemptions from conduct
scheme. requirements for certain areas of the trade. In particular,
• By indirectly restricting entry into the industry – participants called for a ‘level playing field’ for auctions,
such as by requiring applicants to provide a large brokers and retail traders, where all are subject to the
sum of money as a bond or initial application fee, same obligations.
thereby limiting those able to enter the industry.
• By imposing burdensome costs on parts of the
industry, or reducing compliance costs in other
areas – such as differentiating licence fees.
• By imposing restrictions on the way current
industry participants (licensees) conduct business –
for example by restricting auctions to only selling
x > Motor Car Traders Act Consultations Report
Clarification of existing legislation Communication and information
Many participants criticised the Act as having gaps in provision
consumer protection, which had led to the growth of Apart from uncertainty regarding the operation of the
certain areas of the industry in order to capitalise on Act, many of the concerns of participants have arisen
these gaps. The growth areas that were said to be outside from misinformation, or a lack of information, regarding
the operation of the Act, or circumvented some of the the activities of the Business Licensing Authority,
consumer protection provisions, included auto recyclers, Consumer Affairs Victoria and Motor Car Traders
car removalists, brokers, internet trading and auctions Guarantee Fund Claims Committee.
selling off the floor. However, it is not clear whether the
Quite a number of suggestions were made based on
Act does in fact cover these areas and traders only
perceptions rather than facts. For example, suggestions
perceived there to be inadequacies.
for changing the application process often arose from
If these gaps are merely perceptions and the Act does perceptions of the types of traders who made claims
apply to these areas of the trade, it may indicate that against the fund (those with less experience or due to
there is a lack of enforcement of the Act in relation to under-capitalisation). However, information provided by
these areas. the Motor Car Traders Guarantee Fund Claims
An example of the confusion regarding the application Committee did not support these perceptions. Similarly,
of the Act was in relation to the calls for a level playing without information on enforcement activity, traders
field discussed above. Participants said that where could believe they were unfairly targeted and that
auctions sold off the floor, they should be subject to the unlicensed traders were not prosecuted.
same requirements as retail traders. There were differing Provision of the following types of information (on a
views among participants as to whether auctions were regular basis) would help to remove misperceptions and
already subject to the same requirements as retail traders’ dissatisfaction with the accountability of
traders. government agencies:
In this, and many other areas, clarification of the • information aimed at training licensees and
operation of the existing Act would most likely improving their knowledge and understanding of
demonstrate that the Act does apply to these areas of the the various pieces of legislation, together with
industry. Further, it would ease the concerns of retail advice on good customer service and business
traders that the Act was unfairly biased against them. practice
• information on compliance and enforcement
• details of disciplinary action taken
• details of claims against the fund, including
amounts claimed and the types of traders these
claims are paid out against
• information on licence applications.
In addition to the provision of the above information to
traders, the establishment and promotion of a contact
point within government to assist traders, to provide
advice and to hear concerns would improve traders’
relationship with the government regulators.
Motor Car Traders Act Consultations Report > xi
Enforcement of legislation Difficulties in the practical
Throughout the consultations, there was significant implementation of the legislation
criticism of Consumer Affairs Victoria’s enforcement of
The conduct requirements imposed under the Act can
the Act. This criticism was exacerbated by traders’ lack of
be onerous and impose significant costs on traders, such
information regarding enforcement activity and
as the requirement to provide statutory warranties and
uncertainty regarding how the Act currently applies in a
roadworthy certificates. Despite these costs, traders were
number of areas.
largely happy with these requirements. Most concerns
Not only did traders suggest there was not enough regarding conduct requirements related to traders’
enforcement activity, they expressed a belief that current alleged inability to comply, or difficulty in complying,
enforcement activity was biased against licensees and with some of these requirements.
that unlicensed activity was largely ignored. Traders felt
Examples of difficulties in compliance included
targeted by investigators, who they believed they were problems in obtaining previous owner details to include
just revenue raising. Provision of information on in the Form 7 and difficulties of motorcycle traders
enforcement activity would help alleviate these verifying clear title of unregistered motorcycles.
The concerns of traders in these areas were an important
There were a large number of suggestions for catching part of the consultation process. It is only through
(or reducing the number of) unlicensed traders and discussion with those applying the law on a daily basis
improving enforcement. The most common suggestion that practical difficulties in its implementation can be
being greater collaboration between Consumer Affairs identified and understood. By addressing these issues,
Victoria, the Business Licensing Authority, VicRoads and and considering alternatives, regulators can signal to
the Police. industry participants that it is willing to work together
Traders’ calls for greater prosecution of unlicensed to develop a regulatory framework that meets the needs
traders were most likely because they dislike the of both industry and consumers.
competition presented by such traders, rather than
concerns for consumers dealing with unlicensed traders.
Improvements to consumer
Few participants acknowledged that breaches of the Act protection
by licensees may be a greater concern to consumers than One of the main objectives of the consultations was to
unlicensed traders due to consumers’ different assess the effectiveness of the legislation in meeting the
expectations of the protections afforded them. When needs of consumers and to identify areas where
dealing with an unlicensed trader, consumers will improvements could be made. Although the majority of
generally believe they are purchasing the vehicle participants in the consultation process were traders or
privately, in which case they will not have the benefit of industry representatives, the Act’s objective of protecting
protections such as the statutory warranty or cooling-off consumers was still considered. In particular, consumer
period. However, when purchasing from a licensed representative groups such as the RACV and the
trader, consumers expect them to comply with the Consumer Law Centre commented on the regulatory
requirements of the Act. framework from a consumer perspective.
In general, participants indicated that the protections
afforded under the Act provided an appropriate level of
consumer protection. However, consumers’ awareness of
these protections and their ability to enforce their rights
xii > Motor Car Traders Act Consultations Report
These recommendations are a combination of proposals Recommendation 5 – page 16
for legislative and administrative change. These include That information on relevant legislation and other areas
proposed changes to both the Act and Regulations and of interest be provided to licensees on a regular basis
changes to the way the legislation is administered and through a newsletter (or other suitable format).
enforced by the Business Licensing Authority and
Recommendation 6 – page 17
Consumer Affairs Victoria. In addition, several
That consideration be given to introducing different fees
recommendations relate to the activities of other areas of
for different areas of the industry, having regard to the
government outside the consumer affairs portfolio.
effects on the industry and the purposes of licence fees.
Recommendation 1 – page 8
Recommendation 7 – page 18
Since it is not clear from the consultations what the
That consideration be given to introducing additional
benefits of a closed scheme would be to the public as a
fees for extra/additional premises held by a licensee, fees
whole, an ‘open’ licensing scheme should be
for permission applications and the exemption of
partners from licence fees or the application process
Recommendation 2 – page 13 following dissolution of a partnership.
That the Act be extended to allow the Authority to
Recommendation 8 – page 19
consider associates who:
The application of the above provision to brokers should
• have had a claim admitted against them (or a be clarified, and if necessary to uphold the objectives of
company or partnership in which they were the Act, should be reconsidered.
Recommendation 9 – page 19
• the Authority is satisfied are not fit and proper
The definition of ‘customer service capacity’ should be
persons to hold a licence, if they were to apply for
extended to include aftermarket service and finance,
unless evidence can be provided as to why they should
Recommendation 3 – page 13 not be added.
The impact on directors of companies against which a
Recommendation 10 – page 21
claim has been admitted on the Fund should be clarified
Given that the introduction of some kind of licensing
in the legislation.
scheme or regulation of sales staff was raised at each of
Recommendation 4 – page 16 the focus groups, it is an area that requires further
That the Business Licensing Authority, in collaboration investigation. The benefits and costs of the different
with Consumer Affairs Victoria, VicRoads, the VACC and types of regulation should be further explored.
possibly the Office of Small Business, develop an
Recommendation 11 – page 24
information package for new licensees containing
information on the application of the law and general That replacing the requirement of stipulating in red font
information on how to conduct a motor car trading whether there is statutory warranty, with a requirement
business. to stipulate this in bold font, be given further
Motor Car Traders Act Consultations Report > xiii
Recommendation 12 – page 26 Recommendation 18 – page 33
The inability of wholesalers and finance companies to That options be examined regarding ways to improve
provide previous owners’ details for inclusion in the consumers’ awareness of the existence or otherwise of a
Form 7 due to restrictions under the Commonwealth statutory warranty and their rights and obligations in
Privacy Act should be further investigated. relation to such warranties. At a minimum, traders
should be required to provide consumers with a
Recommendation 13 – page 27
statement of their rights and obligations under a
The benefits and costs of requiring the disclosure of
warranty, where such warranty applies (similar to the
previous owners’ details in the Form 7 should be
standard form supplied by the VACC).
explored in further detail. In particular, options allowing
previous owners to ‘opt out’ or to minimise the Recommendation 19 – page 35
disclosure of personal information should be explored. That options be examined regarding ways to improve
consumers’ awareness of the existence or otherwise of a
Recommendation 14 – page 28
right to a cooling-off period and how to exercise such a
Clarification of the application of this provision to
right. In particular, a consumer’s right (or otherwise) to a
traders advertising on the Internet is required. Also, an
cooling-off period should be made a required particular
examination of whether internet advertisements by
in contracts for sale.
non-traders are captured by regulation 22(4) – that is,
the restrictions on newspaper and magazine advertising Also, the extension of the cooling-off period to new and
– is required. If necessary, the Act and Regulations commercial vehicles should be considered with regard to
should be amended to ensure traders are required to the objectives of the provision.
include their LMCT number in all advertisements, Recommendation 20 – page 38
regardless of whether the advertisements are published The Chattel Securities Act should be amended to require
on the Internet. financiers to cancel a security interest within 7 days of
Recommendation 15 – page 30 the financier having knowledge of the cancellation of
Most of the concerns regarding dealer charges could be the interest by the trader.
alleviated by improved enforcement of the current Should this recommendation not be adopted,
Regulation and perhaps by extending this Regulation to consideration should be given to amending the Chattel
require dealer charges to be disclosed in a minimum of Securities Act as proposed by the Australian Finance
10 point font. Conference.
Recommendation 16 – page 31 Recommendation 21 – page 41
The inability of traders to keep only an electronic That section 37 be amended to reflect the repeal of
version was often raised as a concern throughout the section 8 of the Road Safety Act and to clarify the
consultations. Given the prevalence of these concerns, application of this provision.
the dealings book requirements should be revisited, both Recommendation 22 – page 44
in terms of their rationale and whether the paperwork The Business Licensing Authority and Consumer Affairs
requirements can be improved. For example, a workshop Victoria should give consideration to use of the
involving traders, regulators and software companies Authority’s condition making power and possible
could be organised. enforcement activity under the Fair Trading Act to
There is no clear indication of the benefit of requiring a prevent use of the terms ‘auction’ and ‘wholesale’ where
physical signature in the dealings book. Unless strong these would be misleading to consumers. If these
reasons can be provided as to why it should be options do not adequately address the concerns raised,
maintained, this requirement should be removed. consideration should then be given to legislative change.
Recommendation 17 – page 32
Traders should be required to provide a statutory
warranty for commercial vehicles that are less than 10
years old and have travelled less than 160 000km, where
such vehicles are purchased by private individuals.
xiv > Motor Car Traders Act Consultations Report
Recommendation 23 – page 46 Recommendation 28 – page 51
Consumer Affairs Victoria should examine the effects of Given that so many participants raised the issue of
introducing such requirements, with consideration given brokers, and that this area of the industry appears to
to the objectives, and associated costs and benefits. have emerged only recently, it is recommended that
In particular, the removal of the exemption from further work be carried out on the issue, including the
providing a roadworthy certificate where a registered following:
vehicle is sold at public auction should be given serious • a clarification of how the existing provisions apply
consideration. However, regard must be had to the likely to the various practices of brokers, and
resulting effects on the auction system and the • once the application of the existing provisions is
objectives designed to be achieved by the legislation. clarified, the adequacy of the provisions in
Recommendation 24 – page 46 protecting consumers who deal with brokers should
There should be clarification of the existing provisions be assessed, and
in relation to auctions and an examination of whether • if found to be inadequate, options for legislative
these are achieving the objectives of the legislation. change should be identified and examined,
At a minimum, the legislation should require Form 7’s including the possibility of restricting brokers to
on cars for sale at public auctions to include a price operating only as introduction agents.
range, in the same way that real estate advertised for sale Recommendation 29 – page 53
at auction indicates an anticipated price range. Also, if The inclusion of publishing an advertisement by
the vehicle fails to sell at auction, the passed in value electronic means should be clarified as constituting an
should be displayed on the Form 7. offer to sell a motor car for the purposes of section 7A.
Recommendation 25 – page 47 Recommendation 30 – page 54
Further consideration should be given to requiring That it be made clear that auto-recyclers and car
auctions to record details of vendors and purchasers of removalists who purchase vehicles from the public are
vehicles sold through their auction business where this required to hold a licence.
information would assist enforcement activity.
Recommendation 31 – page 55
Recommendation 26 – page 47 Penalties for unlicensed trading should be increased.
Restricting the sale of written-off vehicles to trade-only
Recommendation 32 – page 60
auctions should be given further consideration, subject
A central contact point for all matters relating to the
to a deeper analysis of who presently purchases these
regulatory scheme, including licensing, compliance and
vehicles, what the risks are to consumers and what the
enforcement, should be established and promoted. This
impact would be on private purchasers.
contact point could be within the Business Licensing
Recommendation 27 – page 48 Authority or within Consumer Affairs Victoria.
An investigation should be conducted into the benefits
Recommendation 33 – page 61
to be obtained from the introduction of dummy bidding
That CAV examine its communications strategy with
restrictions at motor vehicle auctions, having regard to
traders and identify ways in which communication
the differences between the motor vehicle and real estate
might be improved.
Recommendation 34 – page 62
That the points raised in relation to VicRoads be
forwarded to the Minister for Transport for his
Recommendation 35 – page 64
That the points raised in relation to stamp duty be
forwarded to the Treasurer and Minister for Finance for
consideration as appropriate. In particular, it is thought
that the idea of establishing an assessment centre has
Motor Car Traders Act Consultations Report > xv
Recommendation 36 – page 68
That the purpose of the Fund be reviewed. If the
intended purpose is only to compensate consumers,
consideration should be given to the above amendments
suggested by the Committee. However, if the intended
purpose is to compensate all persons who suffer loss,
then no legislative amendment is necessary but
consideration will need to be given to increasing the
amount in the Fund.
Recommendation 37 – page 74
The ways in which consumer and trader disputes are
currently resolved should be examined to determine
their effectiveness and adequacy, and options for
improvement should be considered, including the
establishment of an industry-specific dispute resolution
Recommendation 38 – page 75
Consumer protection in relation to new car warranties
and ‘lemons’ is an area that requires further
investigation, particularly given the large amounts of
money involved and the unequal positions of
consumers and vehicle manufacturers. Such an
investigation could occur in the context of a broader
examination of ‘lemon laws’ and their possible
application to other types of products as well as cars.
xvi > Motor Car Traders Act Consultations Report
1.1 Background to the 1.2 The consultation process
At the Motor Industry Forum on 03 March 2004, the One on one meetings were held with a variety of
Minister for Consumer Affairs, John Lenders MP, stakeholders including industry and consumer
announced that Mr Noel Pullen, member for representatives, a small group of individual traders
Higinbotham, would be consulting with stakeholders on representing a cross-section of the industry and
the operation of the Motor Car Traders Act 1986. consumers. In addition, focus group meetings were held
(primarily with traders) throughout regional and
The consultation process was initiated in response to
metropolitan Victoria, including Preston, Frankston,
calls from the industry and a recognition that the
Geelong, Bendigo, Ringwood, Wodonga, Traralgon and
industry and marketplace has changed since the last
Warrnambool, in order to provide an opportunity for as
major review of the Act in 1996, including the growth of
many traders as possible to have a say in the future of
the Internet and online vehicle sales.
There were no formal terms of reference for the
Throughout the consultations, a number of written
consultations. However, the consultations had the
submissions from interested stakeholders were also
following broad aims:
• to gain a better understanding of the issues in
The consultations, in particular the focus groups, were
relation to the Act and how the Act is currently
informal and no official transcripts were taken. This was
in order to encourage participation and open discussion.
• to assess how effective the Act has been in meeting
During the consultations, various allegations were made,
the needs of consumers and traders
including allegations of infringements. As such
• to determine if there are improvements that could allegations were beyond the scope of the consultations,
be made to the regulatory framework, and no details were sought, but participants were provided
• to work through some of the issues raised at the with appropriate contact details in Consumer Affairs
Motor Industry Forum held in March 2004, which Victoria in order to follow-up in relation to specific
was jointly organised by Consumer Affairs Victoria concerns.
and the Victorian Automobile Chamber of
Some participants also proposed solutions to specific
issued raised by them and others throughout the
consultations. Every effort has been made regard to
these proposals that it was pleasing to see so many
participants in the forums and other meetings so
actively contributing to the discussions.
1.0 Introduction > 01
There are a number of different ways in which LMCTs
1.3 Overview of the industry can conduct business. For example, they might sell to
the public or operate only in the wholesale sector
(purchasing and selling within the trade). In addition,
they may conduct sales by auction. They might trade in
The motor car trading industry is an important part of a range of vehicle types, including new or used cars, and
Victoria’s economy. The industry covers a range of retail may specialise in particular areas, such as prestige cars,
operations including the trade of new and used cars, motor cycles or buses.
and the sale of related goods and services, such as repairs
and fuel. Licences may also be obtained by businesses whose
primary activity is not trading in motor vehicles. For
The motor vehicle retail industry also has a significant example, they may operate a business in another area of
impact on other areas of the motor vehicle industry, the industry, such as motor vehicle repairs, or they may
such as vehicle manufacturing, financiers and insurers. operate an unrelated business, such as a hospital or
Trading in new and used vehicles can involve a council.
complicated set of transactions between the
manufacturer and the consumer. For example, a vehicle These consultations emerged following concerns from
may be purchased from the manufacturer by a the industry that the Act was not keeping up to date
wholesaler, before being sold to a trader who then sells with changes occurring in the industry. Among the
to a consumer. In addition, the purchase of a vehicle many changes cited include the development of the
involves several government transactions including Internet and Internet sales, the growth of private sales
stamp duty, GST, and vehicle registration and often and the emergence of brokers in the industry. Another
involves a finance arrangement. relatively recent development is the introduction, or
planned introduction, of so called ‘park and sell’ venues
There are many ways in which a consumer can purchase in Victoria.
a car. For example, they may purchase privately, at
auction, or from a licensed motor car trader. In addition,
there are several different stages of a vehicle’s life-cycle at
which consumers can make a purchase. For example, a
consumer may purchase a new car, a demonstration
vehicle, an ex-rental, or a used car, and at the end of the
vehicle’s life, they may sell it to an auto-recycler.
As at 30 June 2004, there were approximately 2200
licensed motor car traders in Victoria. Although there
were 162 new licences issued in 2003-04, the total
number of licences has not changed significantly over
the past 5 years. Victorian licensed motor car traders
(LMCTs) are predominantly located in the metropolitan
area, in particular in Ringwood, Preston, Cheltenham
and Dandenong. However, there are also a large number
of LMCTs in regional areas, in particular in Ballarat,
Bendigo and Geelong.
02 > 1.0 Introduction
The primary pieces of legislation governing the motor Sellers who possess this information may not have an
car trading industry is the Motor Car Traders Act 1986 incentive to reveal it to buyers. This information
and the Motor Car Traders Regulations 1998. In addition asymmetry is compounded by the cost and complexity
to this industry-specific legislation, a number of other of the product and, in general, a lack of expertise on the
Acts are also relevant to the industry. These include the: part of buyers. Also, in many cases, the quality, reliability
• Fair Trading Act 1999 and safety of a car only becomes apparent after the car
• Business Licensing Authority Act 1998 has been purchased and driven for a period of time.
• Road Safety Act 1986 Information asymmetry problems also provide an
• Chattel Securities Act 1987 opportunity for fraudulent and deceptive conduct,
• Duties Act 2000 because buyers are susceptible to being misled by sellers.
The potential for fraud and deception may encourage
unethical operators to enter the industry, particularly in
2.1 Objectives of the legislation an industry like motor car trading, where it is relatively
easy for an operator to enter the market.
The legislation aims to deal with the problems associated
with information asymmetry by including measures
The stated purpose of the Motor Car Traders Act 1986
broadly intended to:
(the Act) is:
• improve buyers’ bargaining position by both
…to provide for the regulation of motor car traders and
correcting and compensating for information
to ensure that licensing is carried out efficiently and
equitably and that the rights of those who purchase
• provide efficient disciplining of dishonest trades,
motor cars are adequately protected.
Regulation of motor car trading is designed to address • allow losses due to dishonest trader conduct to be
what is known as an ‘information asymmetry’ that is recovered.
inherent in motor car trading transactions. An
information asymmetry refers to a situation in which
not all parties to the transaction have the same level of
information, or the necessary information in order to
make an optimal decision.
In the case of motor car transactions, an information
asymmetry exists because buyers generally do not have
sufficient information regarding the quality, safety or
reliability of the motor vehicle to make an informed
decision or negotiate an appropriate price.
2.0 Current regulatory framework > 03
3. The establishment of a fund to provide for
2.2 Achieving these objectives – the compensation for persons who suffer loss by
regulatory framework reason of the actions of motor car traders.
• The Fund is used to meet the costs of
administering the regulatory scheme and to pay
The regulatory framework comprises three main claims to consumers for certain losses incurred as
elements: a result of motor car traders’ actions.
1. The control of motor vehicle traders through a • The Fund primarily receives revenue from licence
licensing system. fees as well as fines imposed under the Act and
• The Act regulates entry into the industry through any interest earned through investment of
the licensing scheme and makes it an offence to monies held by the Fund.
carry on the business of trading in motor cars This regulatory framework addresses the objectives by:
without holding a motor car trader’s licence. • ensuring that information held by sellers, which
• Individuals, partnerships and bodies corporate is relevant to a purchasing decision is disclosed to
may apply for a motor car trader’s licence, buyers
provided they meet certain specified criteria. • providing an assurance to buyers that the vehicle
These criteria and the application process are being purchased meets legal requirements for
discussed in further detail in section 3. registration and has clear title
• The Act also provides for a system of disciplinary • preventing misrepresentation by sellers regarding
action for motor car traders, including fines and quality of the vehicle by providing some
licence cancellation or suspension. Disciplinary assurance of reliability at the time of sale
action is discussed further in section 6.
• deterring unfair and unconscionable conduct by
2. The establishment of positive protections for traders in negotiating contracts
members of the community on the buying, selling • providing efficient disciplining of dishonest
and exchange of motor vehicles. traders, and
• The Act contains a number of requirements • providing for the recovery of losses due to
affecting business conduct and contractual dishonest trader conduct to be resolved.
relations between sellers and buyers of motor
vehicles. These provisions apply mainly to the
sale of used vehicles between traders and
consumers. However, some provisions also apply
to new vehicle sales and private sales.
• These conduct provisions include requirements
relating to odometer readings, roadworthy
certificates, consignment selling, advertising,
cooling-off periods and statutory warranties.
These provisions will be discussed further in
04 > 2.0 Current regulatory framework
2.2.1 Who does the Act apply to? 2.3 The regulatory framework and
The Act defines a motor car trader as any person who competition policy
carries on the business of trading in motor cars, except
those doing so in the capacity of employee or those
involved in a number of transactions which are
In 1995, the Australian state and territory governments,
excluded from the definition.
together with the Federal Government agreed on a
The following transactions are excluded from the framework to promote enhanced competition in
definition of ‘trading in motor cars’, and therefore the Australia. The Competition Principles Agreement, one of
people involved are exempt from the requirement to three inter-governmental agreements reached, provides
hold a motor car traders licence: that legislation should not restrict competition unless it
• Any person buying from, selling to, or exchanging can be demonstrated that:
motor cars with a licensed motor car trader, (a) the benefits of the restriction to the community as
financier or manufacturer (such as wholesalers who a whole outweigh the costs; and
buy only from, and sell only to, LMCTs). (b) the objectives of the legislation can only be
• Any person selling, buying, or exchanging with achieved by restricting competition (that is,
their employee or with an employee of a related whether there are alternative ways of achieving
company. the objectives that are less anti-competitive).
• Financiers selling, by public auction or tender, cars There are anti-competitive effects inherent in all
that have been repossessed or surrendered (by licensing schemes. By restricting participation in the
persons who are not motor car traders). industry to those who have obtained a licence, the
• Private sale by financiers of repossessed cars to licensing requirements restrict competition in the
buyers introduced by persons from whom the cars industry.
Restrictions on licensees can impose substantial costs to
• Any person selling cars to a person who has hired
consumers (purchasers of motor vehicles) through
or leased the car for a continuous period of at least
higher prices and reduced choice. Under the existing
3 months immediately prior to sale.
regulation, the costs of entering the industry are
• Buying or selling at public auction ex-government
relatively low. Provided that applicants meet certain
cars or cars owned by a company (not a licensed
minimum standards under the Act, all that is required to
motor car trader) in liquidation.
become a licensed motor car trader is payment of a $778
Private sellers of used cars are exempt from the Acts’ application fee and an annual licence fee of $973.
requirement to be licensed or to meet conduct
In a review of the Act that was completed in 1998 which
requirements contained in the legislation other than
applied the national competition principles, the view
those prohibiting odometer tampering and requiring
was taken that the licensing scheme imposed relatively
used vehicles to be sold with a current roadworthy
few costs in terms of entry to the industry.
The Australian Finance Conference, which is a national
association of finance institutions, supported the
retention of the exemption relating to financiers selling
repossessed cars. The Conference noted that this
exemption acknowledged the difference between
financiers and motor car traders, and the already high
level of regulation of the finance industry.
2 It should be noted that the Act contains a deeming provision, whereby a private seller is deemed to be trading in motor cars if
they buy, sell or exchange four (4) motor cars within a 12 month period.
2.0 Current regulatory framework > 05
Participation in the
Under the Act, it is an offence to carry on the business
of trading in motor cars without holding a motor car 3.1 An ‘open’ licensing scheme
The licensing scheme is administered by the Business
Licensing Authority. In 2003-04, the Authority received The licensing system is an ‘open’ one in the sense that
181 licence applications, issued162 new licences and there is no cap on the total number of licences that may
processed 2074 notifications, annual statements and be granted. Provided that applicants meet the licensing
licence renewals. As at 30 June 2004, there were 2205 criteria set out in the Act, the Authority must grant a
licensed motor car traders in Victoria. licence.
The licensing scheme allows for more effective This open licensing system is in contrast to some
monitoring of industry participants. Through the licensing schemes that operate in other industries, such
imposition of penalties, suspension of the right to trade, as taxi drivers and abalone divers, where there is a
or in cases of more serious misconduct, loss of the right ceiling on the total number of licences that can be
to trade, the licensing scheme provides a credible issued.
deterrent to dishonest conduct.
One of the benefits of an open licensing scheme
compared to a ‘closed’ scheme, is that it significantly
reduces the licensing requirement’s anti-competitive
effect caused by the raising of entry barriers to the
During the consultations, a number of traders suggested
that a closed scheme should be adopted in relation to
motor car traders and a cap on the number of licences
issued should be applied. This was an issue that was first
raised at the Motor Industry Forum, and seemed to arise
from a general, and widespread, concern that motor car
traders licences were ‘not worth anything’.
3.0 Participation in the industry > 07
At present, traders can sell their business and business
name, but used-car traders in particular, argued they Recommendation 1
cannot obtain a premium for the goodwill of the
business. For those with new car dealerships, the Since it is not clear from the consultations what the
position is slightly different, as they are able to sell what benefits of a closed scheme would be to the public
is effectively a franchise. With a fixed number of as a whole, an ‘open’ licensing scheme should be
licences, traders would be able to on-sell their licences to maintained.
someone approved by the Authority, which would allow
a value to be placed on their licence.
Traders suggesting a cap on licences said that if they had
an asset they could sell, they would work harder and 3.2 Licence categories
have more incentive to comply with the Act, because
the possibility of losing their licence through non-
compliance with the Act would have significant There is only one category of licence issued by the
financial consequences. Authority. However, the imposition of a ‘wholesale only’
The idea of a closed licensing scheme received mix condition on a licence, effectively creates another type
reaction from stakeholders throughout the of licence – a wholesale licence. Under the Act, licensees
consultations. There was some acknowledgment that with a wholesale condition can only sell to other
such a scheme would create significant barriers to those licensed motor car traders (although they can purchase
wishing to enter the industry, as they would have to pay from other licensees or the public)3.
a lot more for their licence. Further, some traders said A further distinction made among licensees relates to
the system would be hard to work and, in the absence of auctions. Although not a separate licence, a licensee may
improvement in the current enforcement system, would apply to the Authority for an endorsement on their
just lead more people to trade without a licence. licence to conduct public auctions. This effectively
Traders calling for a cap on licence numbers may not be creates a distinction between those who are able to
aware that the total number of licences in operation at conduct auctions and those who are not.
any one time has remained fairly constant over the last Although not distinguished administratively, wholesale
20 years, with around 2000 to 2200 licensees. Although traders and those with auction endorsements are exempt
around 200 new licences are granted each year, the from some of the conduct requirements that must be
equivalent number generally lapse or are suspended, observed by traders who do not have a wholesale
cancelled or revoked. This indicates that market forces condition or auction endorsement. Wholesale traders
act to create a natural limit to the number of licensees in and auctions are discussed further under separate
the industry. headings below.
If a closed scheme were to be introduced, it would need During the consultations, it was suggested that, because
to be clear what it was trying to achieve, and whether of these exemptions and the resulting reduction in
there were alternative ways of achieving the same compliance costs, the auction and wholesale areas of the
objective. This is because it would significantly increase industry had grown. Traders said that the lines between
the anti-competitive effect of the legislation and, in retail, wholesale, and auctions were blurring, particularly
accordance with national competition policy, could only where brokers were also operating in the industry.
be justified where the benefits exceeded the costs.
3 During the consultations there were allegations that wholesale licensees did sell directly to consumers. If this did occur, the
licensee would be in breach of their licence condition.
08 > 3.0 Participation in the industry
Participants said one example of this blurring was Without an impending threat of enforcement activity,
between an auction and a retail licensee. An auction traders may have an incentive to apply for the licence
endorsement does not mean the licensee can only trade that had the lowest fee, or the least onerous conduct
by auction, just that they can trade by public auction if requirements, but to trade outside the limits of the
they wish. This means that licensees with an auction licence.
endorsement are able to ‘sell off the floor’ prior to
A number of traders also suggested different licence fees
auction as well as at auction. Some participants
for different types of traders — the practical
expressed concern that consumers are confused when
implementation of which may necessitate different
auctions also sell retail as to whether the protections in
licence categories. These suggestions are outlined below
the Act apply.
under the heading ‘licence fees’.
Some traders also suggested that because of their auction
endorsement and the corresponding exemptions from 3.3 Licence application and
certain requirements in the Act, licensees with an approval process
auction endorsement used this endorsement to avoid
complying with these requirements, even when selling
‘off the floor’. A number of traders said that to avoid An application for a licence may be made by an
such circumvention of the Act, trading by auction individual who is at least 18 years of age or by a
should not be an endorsement to a licence, but a partnership or body corporate. When considering
condition of a licence. If made a condition of a licence, applications, the Authority must grant a licence if it is
traders could apply to have an ‘auction only’ condition satisfied that the application complies with the Act; the
imposed on their licence in the same way that traders relevant information has been provided; the licence fee
can apply for a ‘wholesale only’ condition. However, has been paid; and there are no grounds for refusal
such a condition would appear to be unfairly restrictive under the Act.
as auctions would be unable to sell a vehicle that failed
There are a number of grounds for refusal of an
to sell at auction (a vehicle that was passed in).
application under the Act. For example, for an
Some participants mentioned that the NSW licensing individual application, these grounds include that the
scheme is quite different in that there are 7 different applicant4:
categories of licence including dealers’ licences, auto- • is disqualified under the Act or an Act in another
dismantlers’ licences, wholesalers’ licences, and motor state from holding a licence
vehicle consultants’ licences. Although the differences in • does not have, or is not likely to continue to have,
the Victorian and NSW schemes were pointed out, there sufficient financial resources to carry on the
did not seem to be wide support for adoption of the business of trading in motor cars, as proposed in
NSW licensing categories. However, some participants the application
did suggest a different licence category for auto-recyclers
• does not have sufficient expertise or knowledge of
and others that only buy from, rather than sell to, the
the Act and regulations to enable the applicant to
carry on such a business
One problem that might arise from the creation of • does not have, or is not likely to have, premises in
different licence categories is the restriction of traders’ which the applicant can lawfully carry on such a
freedom to diversify their businesses. For example, if business
there were a separate licence for motor cycle traders, • has been convicted or found guilty of a serious
would such traders be able to accept trade-ins of offence (although there is provision in the Act for
vehicles? And similarly, would other traders be able to such a person to be granted permission to hold a
accept trade-ins of motor cycles? licence).
A further problem that may occur is that enforcement of
the different restrictions placed on each of the licence
categories may be hard or costly to monitor and enforce.
4 Similar grounds apply to applications from partnerships and corporations.
3.0 Participation in the industry > 09
The above restrictions imposed by the Act aim to ensure 3.3.1 Criteria for refusal of a licence
that the standards of consumer protection provided for
in the Act will be upheld by the applicant when trading As outlined above, the Authority must refuse to grant
in motor vehicles. In addition, the screening of applications where applicants do not meet certain
applicants, and the refusal of applications in certain criteria. The most comment during the consultations
situations, is designed to limit the possibility of was on the ‘financial resources’ and ‘suitable premises’
dishonest dealings by excluding persons who, on the criteria. Section 13(4) of the Act states, among other
basis of past conduct, have demonstrated a likelihood things:
that they will behave in an inappropriate manner. The Authority must refuse an application for a licence if
it is satisfied that –
Issues concerning the licence application and approval
(d) the applicant does not have, or is not likely to
process were raised consistently at each of the meetings
continue to have, sufficient financial resources to
and focus groups held throughout the consultations.
carry on the business of trading in motor cars
Concerns often related to the perceived ease in which
proposed by the applicant, or
new licences could be obtained. There were generally
(h) the applicant does not have, or is not likely to have,
two aspects to such concerns:
premises in which the applicant can lawfully carry
• First, that the continued issue of new licences
on such a business.
meant that existing licences weren’t worth
anything (see above discussion on the ‘open’ This provision gives the Authority discretion regarding
licensing scheme), and what is ‘sufficient financial resources’ and what type of
• Second, the assertion that licences were being premises is required. Although many traders intimated
issued to individuals, partnerships or bodies that the Authority was not applying strict enough
corporate in situations where the applicant was not criteria in relation to these matters, very few seemed to
in a position to uphold the standards of consumer be aware of the current tests being applied. This lack of
protection provided for in the Act, and as a result, awareness of current requirements was also a concern to
claims on the Guarantee Fund were increasing.5 some traders, who suggested that the Authority was not
currently accountable to traders.
These concerns were generally raised in the context of
the criteria for refusal of a licence; the granting of A large number of traders argued that new licensees are
licences to people who are engaged in other business often under-capitalised, resulting in more claims against
activities; the training and qualifications of licensees; the fund. To prevent under-capitalised operators from
and the level of licence fees. obtaining licences, it was suggested that all new licensees
should be required to pay a bond or deposit to the
Authority. This would then be returned after a sufficient
period of operation (for example, 10 years), if there were
no infringements against the Act or claims against the
fund. Although this was a common idea, what traders
felt was a suitable amount for this bond or deposit was
often not indicated. However, amounts that were
suggested ranged from $30 000 to $100 000.
5 Although claims on the Fund have increased in recent years, data provided by the Motor Car Traders Guarantee Fund Claims
Committee does not support the assertion that more claims arise from new entrants to the industry.
10 > 3.0 Participation in the industry
Currently, the Authority is able to impose conditions on Some thought that perhaps licence renewal should be
licences. The Act specifically provides that contingent on satisfaction of certain financial checks
‘the Authority may require as a condition that the rather than automatic as it currently is. However, such
person who holds, or is to hold, the licence must provide checking would involve significant administrative cost
the Authority with a guarantee or an indemnity in a and the benefits would be contingent on any financial
form, and secured in a manner, specified by the problems being readily identifiable from the financial
Authority’ (s. 14(3)). checks conducted.
During the consultations, the Authority itself suggested Given the current power of the Authority to impose a
that this provision be amended to provide for a licence condition requiring licensees to provide financial
payment of a bond as an alternative to providing a bank reports or bank guarantees, there would be little extra
guarantee or indemnity. This bond would be refundable benefit to be obtained from annual financial checks on
in full if no claims were made on the fund within a all licensees.
specified period following the surrender or cancellation The other ground listed above for refusal of a licence is
of the licence. that the applicant does not have premises in which they
The Authority’s suggested amendment is aimed at can lawfully carry on such a business.
providing more flexibility to applicants and licensees to In general, traders did not know how this provision was
meet this licence condition. It would also likely make currently applied by the Authority. Many seemed to
compliance with the conditions less onerous. For think that the Authority just required applicants to
example where an applicant or licensee experiences provide a photo of a retail premises in order to satisfy
undue delays in obtaining a bank guarantee for some this requirement. Traders saw a number of problems
reason, yet was able to provide a bond. with a photo being able to satisfy this provision. First,
The current provision regarding guarantees can be and most obviously, applicants could take a photo of a
applied to both licence applicants and licensees. Data premise that was not theirs.
provided by the Authority indicate that this condition is The Authority indicated that applicants were required to
imposed relatively often, with 27 new licensees (around show they had all the relevant council approvals
22 per cent of applicants) and 5 existing licensees necessary to conduct the business. Councils may impose
required to provide bank guarantees in 2003-04. The restrictions on how a premises may be used, or specify
average amount required to be provided by a new that a business must have certain facilities. If such
licensee was $27 000, although individual amounts restrictions or conditions are imposed, the applicant
ranged from $5000 to $150 000. must comply with these in order to obtain a licence. The
The suggestion of traders that applicants be required to Authority said the current test facilitates a range of
pay a deposit, if implemented, would remove the trading operations and provides flexibility in the way
discretion of the Authority to require applicants to licensees conduct their business.
provide a bank guarantee (or bond), and make such a Notwithstanding the misconception regarding how this
condition mandatory. provision is interpreted and applied by the Authority,
Again, requiring applicants to provide a large sum of many traders queried how people were able to obtain
money as a bond would increase the barriers to entry licences and operate from garages and other non-caryard
into the industry significantly. It is uncertain how much premises. For example, anecdotal evidence was provided
of a problem under-capitalisation is in relation to new that some traders buy and sell cars from a garage out the
licensees, and whether claims are made against the fund, back of their house or from farms and orchards.
which can be traced to under-capitalisation at the time Inherent in these concerns is that traders did not think
of licence issue. that the existing requirements that there be ‘premises in
In addition to questioning the financial stability of which the applicant can lawfully carry on such a
licence applicants, many focus group participants also business’ was a sufficient criteria. Instead, it was implied
thought there should be ongoing monitoring, or at least that there should be some assessment of the suitability
periodic checking, of finances once a licence is obtained. of the premises to conduct a motor trading business.
3.0 Participation in the industry > 11
Traders suggested that premises should have to be This issue is discussed further below under ‘traders’
equipped with certain minimum customer service contact with Consumer Affairs Victoria.
facilities, such as toilets, in order to satisfy the
A conviction for a serious offence is not an absolute bar
requirement. It also seemed that traders thought only
to obtaining a licence. Under s. 29B, the Authority may
applicants that had premises where cars could be
grant a licence to a person who has been convicted or
displayed and inspected should be granted licences. For
found guilty of a serious offence, if it is not contrary to
example, some suggested that Councils and hospitals,
the public interest to do so.
which are currently able to obtain licences, should be
refused licences on the grounds that they do not have Several traders commented that licences should not be
‘car yard’ type premises. given to people with any kind of criminal record. These
comments may be interpreted in three ways:
In contrast to traders seeking more stringent criteria for
• that the traders misunderstood this to be the
premises, some participants said it was obsolete to
present law and were just asking for the existing
require a licensee to have premises given that business
law to be applied
could be conducted entirely over the Internet. However,
• that the traders wanted the Authority’s power
unless vehicles are only ever delivered to internet
under s. 29B to issue licences to applicants
purchasers, licensees trading online will still require
notwithstanding a criminal conviction, to be
premises to store cars and display them when the
purchaser collects the vehicle. Without a requirement to
• there is reason for extending the existing provision
have premises, licensees may appear to be a private
to exclude applicants with any type of criminal
seller, in which case the consumer would not be aware
they were entitled to the protections under the Act. It is
difficult to imagine a situation in which traders can If interpreted in the first of these ways, the comments
conduct their business entirely online and at the same were a result only of a misunderstanding about the
time afford consumers appropriate protection. present law and concerns should be resolved following
clarification of the provision. If either of the other
Another ground for refusal of a licence is if an applicant
interpretations is correct, it is not clear what traders’
has been convicted or found guilty of a serious offence
concerns were with the present requirement, or what
within the last 10 years. The Act defines a serious
benefit the suggested changes would have. On this basis,
offence as an offence involving ‘fraud, dishonesty, drug
the current provisions should remain.
trafficking or violence punishable by imprisonment for 3
months or more’. The VACC raised concerns regarding The Business Licensing Authority raised two other issues
the interpretation of ‘serious offence’ and the Authority’s regarding licence applications. The first related to its
application of the term in relation to both licence ability under the Act to have regard to an applicant’s
refusals and licence cancellations. It questioned whether associates when considering whether to grant or refuse a
other types of offences, not involving fraud, dishonesty, licence application. Relevant considerations under the
drug trafficking or violence punishable by imprisonment Act are whether the applicant:
for 3 months or more, could be found by the Authority • is an associate of a person who has been convicted
to be sufficiently serious to warrant licence cancellation or found guilty of a serious offence
(or refusal). To clarify the operation of this provision, the • is an associate of a body corporate that has a
VACC requested that an exact list of offences that would director or secretary that has been found guilty of a
lead to automatic cancellation (or licence application serious offence.
refusal) be provided.
The VACC’s concerns regarding interpretation of this
provision are an example of where the industry would
be likely to benefit from a central contact point within
Consumer Affairs Victoria or the Business Licensing
Authority, who they could contact with these concerns.
12 > 3.0 Participation in the industry
The Authority suggested extending the relevant The Authority and the Motor Car Traders Guarantee
provision to include associates who: Fund Claims Committee said the intention of the
• have had a claim admitted against them (or a provision was not clear from its drafting and it required
company or partnership in which they were clarification. For example, it was not clear whether
involved) directors of a company that had a claim admitted
• the Authority is satisfied are not fit and proper against it could continue to be a director of another
persons to hold a licence, if they were to apply for company licensee, or whether the second company
one. could apply for a licence.
The Authority said it was aware of traders who had
raised concerns regarding the interpretation of this
provision and who had argued that it did not apply to
Recommendation 2 them.
That the Act be extended to allow the Authority to
consider associates who:
• have had a claim admitted against them (or a
The impact on directors of companies (and partners
company or partnership in which they were
of partnerships) against which a claim has been
admitted on the Fund should be clarified in the
• the Authority is satisfied are not fit and proper legislation.
persons to hold a licence, if they were to apply for
The second issue regarded the situation where a
company licensee has a claim on the Fund admitted
against it. In November 2003, s. 29A (1A) was inserted
into the Act. It provides that a person who was a
director of a corporation or a partner in a partnership
may apply to the Authority: for permission to hold a
licence or to be employed in a customer service capacity;
to prevent a suspension of a licence; to be employed in a
customer service capacity; or for permission to be a
partner or a director of licensee.
The provision was introduced to capture directors of
companies that had claims admitted against them. The
intent of the provision was to put these directors in the
same position as individual traders who had claims
admitted against them.
3.0 Participation in the industry > 13
3.3.2 Granting of licences to people Allegations were made that licensees who operate as a
secondary business are not monitored by investigators,
engaged in other business
who ‘do not see them as a serious act’. No evidence was
activities provided to support claims that a relatively high
It can be seen from the criteria used to assess proportion of claims made against the fund stemmed
applications that licences may be issued to existing from these types of licensees. Traders said they would
businesses who conduct other types of trade or business like more information on where claims against the fund
activities. It is not a requirement that applicants intend were stemming from.
to only conduct the business of motor car trading. This At the Motor Industry Forum in March 2004, the Motor
allows businesses that are closely connected to motor car Car Traders Guarantee Fund Claims Committee
trading to diversify their businesses and make use of presented information on the types of traders that had
synergies between the two areas of operation. For had claims admitted against them in the 3-year period
example, there are many panel beaters or smash to 31 January 2004. This data showed that only 9 per
repairers who are also licensed motor car traders, which
cent of traders who had claims admitted against them
enables them to purchase a car in the course of their
were also involved in wrecking and repairs, and these
trade, repair it, and sell it again.
claims only represented 3 per cent of the value of total
The Business Licensing Authority said such businesses claims.
may decide to become licensed that many panel beaters
Rather than advocating a prohibition on the Authority
who decided to become LMCTs did so in order to take
issuing licences to applicants who intend to use their
advantage of the good reputation they have built up
licence as part of a non-core business activity, traders
amongst their customer base. To preserve this
concerns could be addressed by other means. For
reputation, such traders are unlikely to sell poor quality
example, improving monitoring compliance and
cars or infringe the law. Further, these licensees may
enforcement with the Act and ensuring that these
present less of a financial risk because they can show
businesses have sufficient knowledge of the Act and
they are able to run a business successfully, and should
regulations. It could be argued that the second of these
something go wrong or the motor retail industry suffer a
is already a requirement to the issue of a licence, and
downturn, they have an existing business to fall back
therefore traders’ claims are unjustified.
Some traders said they thought there would be less of a
There are also examples of where existing, unrelated
problem if applicants were required to pay a bond (as
businesses acquire motor car traders licences. For
example, Councils and hospitals may obtain licences in outlined above), because many of these non-core traders
order to sell their fleet cars. It was suggested that such would no longer wish to obtain licences.
businesses obtain licences to avoid paying stamp duty Given that all applicants must meet the same
and transfer fees when they purchase their company requirements in order to obtain a licence, regardless of
cars, because LMCTs do not pay stamp duty when they whether they already operate a business, and data on
purchase cars. claims against the Fund does not indicate a problem
Some traders expressed concern regarding the ability of with regard to non-core licensees, there is no reason why
these licensees to comply with various provisions of the licences should not be granted to applicants who
Act and also that these licensees represent a greater operate another business.
proportion of claims against the Act because they do not
understand the business. Traders claim their sales were
less likely to be at arms length or legitimate under the
Act. Further, they suggest they are unlikely to comply
with the Act in terms of information disclosure to
14 > 3.0 Participation in the industry
3.3.3 Qualifications and training of In each of the focus groups, the possibility of a
minimum qualification requirement for applicants was
raised. However, this received mixed opinion.
The qualifications and training of licensees was raised by
Traders in support of this proposal advocated a scheme
almost all stakeholders who participated in the
similar to that which applies to real estate agents. That
consultations. The issue was raised in two separate but
is, licensees should be required to have a minimum
qualification and a minimum number of years
• the qualifications or knowledge required to obtain a
experience in the industry. A qualification, most likely at
TAFE level, would help ensure that new licensees had
• the ongoing training or testing of knowledge once
sufficient skills and knowledge of the relevant legislation
a licence has been granted.
and general business practice in order to run a motor car
At present, one of the grounds for the Authority refusing trading business successfully. Traders said that requiring
an application is if the ‘applicant does not have a qualification would reduce the number of complaints
sufficient expertise or knowledge of [the] Act to enable or disputes in the industry and result in less claims
the applicant to carry on [the business of a motor car against the fund.
It was noted that in order to obtain a motor dealer’s
During the consultation process, the Authority licence in Queensland, an applicant must have a
explained that applicants were tested on their prescribed educational qualification as specified in the
knowledge of their obligations to protect consumers Regulations, and have a minimum of 3 years experience
under the Fair Trading Act and their obligations under in the industry.
the Motor Car Traders Act. The Authority said applicants
Traders who were not in favour of a qualification
were required to complete a written test rather than a
requirement said that it would add unnecessary red tape
multiple choice test in order to test their comprehension
and be too costly for new entrants. At present, traders
of the legislation.
said there were not any relevant courses available to
Many traders indicated that they thought that whatever obtain a qualification, and that a course would have to
the test currently applied, it was not adequate to ensure be developed by an educational institution. However, it
new licensees fully understood their obligations or how was noted that Kangan Batman TAFE has a College of
to conduct a motor car trading business. Some said Automotive Business Management, which offers two
testing on knowledge of the Act and licensee obligations relevant courses.6 Some traders said this course was not
was not, in itself, sufficient and that there should also be ‘pitched at the right level’ and was aimed more at
testing of an applicant’s knowledge and skills relating to business management than legal rights and obligations.
customer service, business management and the Some traders also said these courses were inaccessible for
paperwork involved in a motor car trading business. people in regional areas.
Traders said that trading in motor cars involves a lot of
complicated paperwork and transactions, particularly in
relation to used cars. For example, there are VicRoads
Acquisition and Transfer Forms, stamp duty and GST
requirements, security interests, Dealings Books, Form
7s, and consumer contracts.
6 A Certificate IV in Automotive Business Management and a Diploma of Automotive Business Management. The VACC also offers
short courses in people management, marketing and advertising.
3.0 Participation in the industry > 15
A number of traders raised the possibility of a training
course for applicants being provided by Consumer
Affairs Victoria or the VACC. The VACC submitted that
the application process undertaken by the Authority
needed to be supplemented by a mandatory short That the Business Licensing Authority, in
training course that all applicants had to undertake prior collaboration with Consumer Affairs Victoria,
to consideration of their application by the Authority. It VicRoads, the VACC and possibly the Office of Small
suggested that a registered training organisation would Business, develop an information package for new
provide the training course and noted that it already had licensees containing information on the application
links with Kangan Batman TAFE and had done some of the law and general information on how to
preparatory work on the modules that could constitute conduct a motor car trading business.
Ongoing training and awareness of legislative
As noted earlier, there was mixed response to the changes once a licence had been granted was also
suggestion that applicants be required to hold a raised. Although the Authority tests knowledge of
minimum qualification or to have experience in the the legislation prior to granting a licence, there is no
industry. The majority view was perhaps that traders further periodic testing of this knowledge after a
should be tested more on their knowledge of the licence is obtained.
industry, law, people skills and teaching how to interact
Many traders felt that the Authority should offer
with consumers and fill in the paper work correctly prior
refresher courses, or provide information
to being granted a licence.
periodically on the various pieces of legislation. This
information should not necessarily only follow
from legislative amendments, but be aimed at
reinforcing existing legislation. Perhaps something
along the lines of a series of fact sheets, which are
issued on a two-year cycle, each dealing with a
particular area of the legislation or regulatory
framework. Such information could assist traders
understand not only their rights and obligations,
but also to understand the rationale for the
That information on relevant legislation and
other areas of interest be provided to licensees
on a regular basis through a newsletter (or other
16 > 3.0 Participation in the industry
3.3.4 Licence fees • That licensees who trade only in motor cycles should
pay a lower fee than licensees in other areas of the trade.
The Act provides that licence applications and renewals This was suggested because it was argued that very few
must be accompanied by a fee, which is prescribed in the claims against the fund are made in relation to motor
Regulations. Currently, the licence application fee is $778 cycle purchases.
and the first and subsequent annual licence fee is $973.
• That licensees with a ‘wholesale only’ condition should
Licence fees are paid into the Motor Car Traders Guarantee pay a lower fee than licensees who can trade with the
Fund and are applied to a variety of things, including public. The rationale for this being that traders aren’t
administration of the licensing scheme and payment of able to claim against the Fund, so wholesale licensees
claims made as a result of dishonest conduct of traders. should not be expected to contribute as much to the
The application of money from the Fund is discussed in Fund.
further detail in section 8.
A number of traders opposed differentiation of fees on the
There was very little comment on the fees in the course of first two of these grounds, saying it would be difficult (and
the consultations. A few licensees suggested that the initial costly) to administer and that differentiation on these
application fee should be increased to between $3000 and grounds would be quite arbitrary and would not
$10 000. This suggestion was proposed as an alternative to necessarily reflect the number or amount of claims made
a requirement for applicants to provide a bond (discussed against the fund. It should also be remembered that the
above), with the obvious difference that the fee would not fund (and therefore licence fees) is applied to a range of
be refundable. expenses, not just claims against the Fund. Therefore,
Only a couple of traders said they thought the annual licence fees should not be based solely on claims made
licence fee was too high, and although some suggested it against the Fund.
should be increased, this received mixed reaction. The introduction of different (and reduced) licence fees
Some traders said they would be willing to pay more in for motor cycle traders and wholesale licensees cannot be
terms of annual licence fee if their licences were worth dismissed as readily as differentiation on the other two
more. For example, if the total number of licences was grounds. However, in considering a reduction in these
capped (a closed licensing scheme) or if there was greater fees, regard must be had to the purpose and use of licence
enforcement and prosecution of unlicensed traders. fees. For example, licence fees are used to fund
enforcement activity as well as claims against the Fund
The current fees apply to all applicants and licensees
and it may be that greater costs are incurred in
regardless of the area of the industry they work in, their
enforcement activity relating to wholesale licensees (to
annual turnover, or their conduct. A number of licensees
ensure they do not sell to the public) than enforcement
raised the idea of having different fees based on
relating to other licensees. Regard must also be had to the
experience, conduct or nature of business. For example,
benefits obtained by licensees from being licensed and
whether existing fees are proportionate to these benefits.7
• That annual fees be differentiated based on number of
years they have held a licence (or total number of years
in the industry). This would involve a sliding scale with
less experienced traders paying a higher fee. The rationale Recommendation 6
for this is that traders with less experience are more likely
to have claims to the fund made against them. That consideration be given to introducing
different fees for different areas of the industry,
• That annual fees either be reduced if no complaints (or
having regard to the effects on the industry and
claims) have been received about them from consumers,
or increased if complaints (or claims) have been made in the purposes of licence fees.
the previous year. Again, the rationale for this is that
those more likely to have claims made against them
should be required to pay more.
7 However, such considerations are not relevant if licence fees are purely a cost recovery measure.
3.0 Participation in the industry > 17
Other comments relating to fees included:
• That a separate fee should be re-introduced for each 3.4 Restrictions on employees
premises from which a licensee carries on the
business of trading in motor cars. The Authority
also requested that consideration be given to
In addition to restrictions on who may obtain and hold
granting the Authority power to refuse to endorse
a motor car traders licence, the Act also prohibits motor
additional premises on a licence in certain
car traders from employing, in a customer service
circumstances. For example, where it is satisfied
capacity, certain people. For example, a motor car trader
that the additional yard will not be properly
must not employ any person who the trader knows:
supervised by the licensee, that conduct from the
additional premises is not financially viable, or that • has had a claim admitted against the fund (unless
the licensee may allow an unlicensed trader to that person has obtained permission from the
conduct business from the premises. Authority pursuant to the Act)
• That a fee be introduced for ‘permission • has been convicted or found guilty of a serious
applications’, where an applicant or licensee may offence (unless that person has obtained permission
apply to the Authority for permission to hold a from the Authority pursuant to the Act)
licence despite a claim on the Fund being admitted • is for the time being disqualified from holding a
against them, or despite a conviction for a serious licence, or from being employed in any capacity in
offence. connection with the business of a motor car trader
• That, following the dissolution of a partnership, • has had their last application for a licence refused
consideration be given to exempting a partner by the Authority.
wishing to continue the business from payment of
During the consultations, several traders said that people
a licence application fee, or to changing the
who have had a claim admitted against the fund should
requirement that they must apply for a new licence.
not be able to work in the industry. They gave a number
of examples of where traders who had their licences
cancelled following claims admitted against the fund
Recommendation 7 had re-entered the industry in a sales capacity. Some of
these traders were not aware that such employees were,
That consideration be given to introducing at present, only able to be employed in the industry
additional fees for extra/additional premises held with the permission of the Authority following the
by a licensee, fees for permission applications and application of a public interest test. Others, who were
the exemption of partners from licence fees or the aware of this provision, wondered how it could be in the
application process following dissolution of a public interest for these people to be employed in the
One reason why the Authority might allow traders to
re-enter the industry following a claim against the Fund
is to allow them to earn a living and to provide them an
opportunity to repay some of the money claimed from
the Fund. However, such permission would be subject to
conditions, including that employment would be in a
supervised capacity where the licensee is responsible for
the employee's actions.
A further concern of traders was whether this provision
applies to brokers, or people working for brokers in the
industry. If it did not, traders said dishonest traders
could circumvent the Act and re-enter the industry in
18 > 3.0 Participation in the industry
As will be discussed below, brokers may need to have a The Business Licensing Authority also provided
licence depending on how they operate. For those who comments on the provisions of the Act that deal with
do not require licences, traders are concerned that employees in the industry. The Authority suggested that
persons who are not permitted to be employed by an:
licensed traders may still be able to work as brokers in ‘obligation be imposed on LMCTs to take reasonable
the industry, without requiring permission from the steps that are necessary to ensure that a prospective
Authority. customer service employee is not prohibited before
The Act states: employing the person. The following would be
sufficient to discharge the obligations:
A person who is not permitted to be employed in a
customer service capacity by a motor car trader… must not • Received a notice of eligibility from the
participate in a customer service capacity in the business of prospective employee
a motor car trader. • Sighted a police records check not more than
6 months old
‘Customer service capacity’ is defined in the Act as:
any position that requires the holder of the position to deal • Conducted a search of the Register of Motor Car
with members of the public who are buying, selling or traders to ascertain that no claims have been
exchanging motor cars or who are seeking to buy, sell or admitted against the prospective employee.
exchange motor cars. The Authority further recommended that the grounds
on which a person is prohibited from being employed in
a customer service capacity be reviewed to determine
Recommendation 8 their applicability and, in particular, whether:
(a) they should be extended to include circumstances
The application of the above provision to brokers where:
should be clarified, and if necessary to uphold the – The person was a director of a company, or
objectives of the Act, should be reconsidered. partner in a partnership, that had it’s last
licence application refused by the Authority
In addition to queries from traders whether – The person’s motor car trader licence, or a
‘customer service capacity’ was broad enough to licence held by a company that he was a
encompass brokers, the VACC suggested that the director of or a partnership in which he was
definition of ‘customer service capacity’ be a partner, has been cancelled under section
extended to include aftermarket service and 31, and
finance to assist dealers in applying a consistent (b) there should be capacity for a person who is
policy. prohibited under any of the grounds (not just the
grounds covered by sections 35A(1)(a) and (b)) to
apply to the BLA for permission to work in a
customer service capacity.
The definition of ‘customer service capacity’
should be extended to include aftermarket service
and finance, unless evidence can be provided as
to why they should not be added.
3.0 Participation in the industry > 19
3.4.1 Licensing of sales staff A training course or qualification was also discussed in
the context of licensing sales staff. Again, the course
The suggestion of licensing sales staff was raised at each
currently offered by Kangan Batman TAFE was noted.
of the focus group meetings. Many individual traders
Some traders suggested that anyone wanting to enter the
thought this was a good idea and a way of ‘cleaning up
industry should be encouraged (or required) to
the industry’. However, the VACC did not support a
undertake this, or a similar, course to ensure they know
licensing scheme for employees.
the law and rules. Although traders did comment that
There was some anecdotal evidence during the they could require, without legislation, their employees
consultations that some employees, who did not uphold to undertake such a course, they again said that because
the consumer protection provisions of the Act, moved the industry was not united, the integrity of the industry
from one trader to another within the industry. A could not be ensured. They also said that they would
licensing scheme could ‘clean up the industry’ by have difficulty finding employees if they made this a
excluding certain persons from entering the industry, or prerequisite to employment, and it would be too
by allowing only those with certain skills or expensive to pay for employees to undertake a course
qualifications to enter the industry. However, the after commencing employment. Traders in regional
effectiveness of a licensing scheme would depend on the areas stated that the costs of paying for employees to
ability of the entry criteria to identify those who should
undertake this course were particularly prohibitive for
be excluded from the industry.
regional traders, given that accommodation would also
Although there are some existing restrictions on who have to be provided.
can be employed in the industry, as indicated above,
Although most traders seemed to agree that the training
there is no general ‘quality control’ of employees. Under
of employees was a good idea, there was mixed opinion
the Regulations, traders are required to ‘supervise and
as to whether such training should be the responsibility
control each servant and agent of the trader, so as to
of traders, or whether it should be mandated by
ensure that the provisions of the Act and the
government through a licensing scheme.
Regulations are complied with’. However, many said it
was difficult to obtain reference checks or information A licensing scheme would have costs for both traders
on work history, or to ensure that applicants were and government.
suitable employees. They also said that they could not Licensing schemes impose a barrier to entry into the
watch their employees all the time.
industry. If sales staff were required to be licensed, there
There are different variations of licensing scheme, each would be fewer sales staff who were able to work in the
imposing different costs and achieving different aims. industry, as some would be unable to meet the licensing
Although the details of a licensing scheme were not requirements or the costs of obtaining a licence. Staff
discussed, traders generally agreed that there should be may seek higher wages to cover the cost of obtaining a
better screening of employees. At a minimum, police qualification, or may simply be able to command a
checks should be conducted and claims against the fund higher wage through less competition in the industry.
should be checked. There was some indication that this
In addition, licensing schemes involve significant
was not currently being done by licensees when hiring
administrative costs, which would have to be recovered
through licensing fees for employees, or perhaps
Although traders noted that they were currently able to through increased fees for licensed motor car traders.
obtain a police report, many argued that because the
Traders said that licensing sales staff would make sales
industry was not united, people failing this check would
staff responsible for compliance with the Act, and
simply go to a trader who didn’t require it. They said
alleviate the current impracticalities inherent in making
introducing a licensing scheme and making a police
traders responsible for all actions of their employees.
report a criteria for issue of a licence, was the only way
Traders said it was not possible to monitor their staff all
to ensure integrity of the industry.
20 > 3.0 Participation in the industry
It was observed in one focus group that a licensing
scheme could only be successful if there was a way of 3.5 Processing of licence
deterring bad conduct and disciplining employees who applications
did not comply with the legislative requirements. It was
suggested that simply losing the ability to work in a car
yard probably wasn’t disincentive enough, and there Apart from the above remarks on the eligibility criteria,
would have to be monetary fines imposed. traders did not really have any comments relating to the
processing of applications by the Authority. However,
Several traders mentioned that sales staff in Western
one licensee stated that the Authority took too long to
Australia are licensed and are required to undergo a
process his application (3 months). He said that the
3-day training course, and in Queensland there is a
owner of the yard he wanted to purchase was unable to
registration system for employees of motor dealers.
wait this long and as a result he says he lost a business
In Queensland, the Property Agents and Motor Dealers Act
opportunity. Other traders indicated that their
2000 provides that a ‘person must not act as a motor
applications had been processed much quicker than this
salesperson unless the person holds a registration
and that they had no problems. It should be noted that
certificate as a motor salesperson’ (s. 335). A person is
the year their applications were processed varied
eligible for registration as a motor salesperson if they are
substantially among the traders at the meetings.
over 18 years of age and they meet the educational or
other qualifications prescribed in the Regulations. An A general point that was raised, is that traders would like
application for registration may be refused if they are more information from the Authority on the
not found to be a suitable person to obtain registration applications that are granted and rejected. Suggestions
after considering certain criteria specified in the Act. included statistics on how many are granted or rejected,
and who they are granted to or why they were rejected.
The Authority noted that it does maintain a register
(that is now available online), which lists the names of
Recommendation 10 all traders granted a licence as well as applications that
have been refused in the last two years.
Given that the introduction of some kind of
licensing scheme or regulation of sales staff was
raised at each of the focus groups, it is an area
that requires further investigation. The benefits
and costs of the different types of regulation
should be further explored.
3.0 Participation in the industry > 21
Regulation of Conduct
The Act and Regulations contain a number of • Traders selling used cars must observe a cooling-off
requirements affecting business conduct and contractual period of 3 clear business days to allow buyers (other
relations between sellers and buyers of motor vehicles. than motor car traders or bodies corporate) to re-
These provisions apply mainly to the sale of used vehicles consider and terminate the agreement if desired.
between traders and consumers. However, some provisions During this period, a trader must not sell or dispose of
also apply to new vehicle sales and private sales. a trade-in vehicle provided by the buyer as part
payment for the car. This provision does not apply to
These conduct provisions include the following:
vehicles purchased at public auction.
• Traders must attach display notices on used cars
• All registered cars (whether registration is suspended or
containing key identifying details of the vehicle such
not) and regardless of age, distance travelled, or price
as odometer reading, cash price (except when offered
must be sold with a roadworthy certificate that has
or displayed for sale at public auction), year of
been issued within 30 days prior to the sale. This
manufacture and first registration, engine number and
requirement applies to both motor car traders and
registration number (if any), and previous owner’s
private sellers but does not apply to vehicles sold on
details. This display notice is known within the
consignment at public auction or if the buyer is a
industry as a ‘Form 7’.
motor car trader, financier, or manufacturer.
• Advertisements for trader’s businesses must contain
• Traders must not sell cars on consignment unless it is
their LMCT number. In addition, advertisements
on behalf of a financier, manufacturer, other licensed
offering used cars for sale (whether by a trader or other
motor car trader, or unless the sale is at public auction.
person) must contain a price of the vehicle and certain
identifying details of the vehicle. • Traders must ensure the cancellation of any security
interest in used cars offered for sale.
• Traders must keep a dealings book on the premises
outlining key identifying details of motor cars • Traders must supply purchasers of a new or used car
purchased, sold or exchanged. with the contract of sale at the time of purchase. These
contracts must include the terms and conditions
• Traders must supply a non-waivable statutory warranty
prescribed, unless the trader is dealing with another
of 3 months or distance of 5000 kilometres (whichever
trader, a financier or a manufacturer. If additional
occurs first) against defects for used cars which are less
conditions are included in the agreement they must
than 10 years old and which have travelled less than
not derogate from the prescribed terms and
160 000 kilometres. This provision does not apply to
vehicles sold at public auction.
• The Act prohibits any person, whether a trader or
private seller, from tampering with, or falsely
representing the accuracy of, an odometer reading of a
used vehicle. Traders must record the odometer
reading at the time of purchase, display it on the car
and state it in the contract for sale.
4.0 Regulation of conduct > 23
The provisions on the previous page are not an
exhaustive list of the restrictions or positive obligations Recommendation 11
imposed under the Act. However, these are the main
That replacing the requirement of stipulating in
provisions that were commented upon during the
red font whether there is a statutory warranty, with
a requirement to stipulate this in bold font, be
given further consideration.
4.1.1 Form 7
It was perhaps this requirement that raised the most
concern during the consultations. The rationale behind the requirement to display these
As noted above, the Form 7 is the notice prescribed by particulars is to improve the bargaining position of
the regulations (Reg 11) that, pursuant to s. 52 of the buyers. The Form 7 provides buyers with the minimum
Act, must be displayed in the window of a used car that amount of information necessary to sensibly negotiate
is offered or displayed for sale by a motor car trader. The over the vehicle. Also, the Form 7 helps to establish a
details that are required to be displayed include: paper trail of essential information, which can provide
• the name and address of the last person registered key information for dispute resolution, the disciplining
as the owner of the motor car, or the previous of traders if required, and the tracking of stolen vehicles
owner of the car, who was not a motor car trader or in some cases.
special trader under the Act Traders’ main concern with this provision related to the
• the odometer reading, and requirement to display previous owner’s details. The
• the cash price of the motor car (except in the case purpose of such a requirement is that the previous
of a motor car offered or displayed for sale at a owner’s details provide consumers with a source of
public auction). independent advice about the car they are considering
The Form 7 must also distinguish between those cars
subject to the statutory warranty under s. 54 and those Some traders mistakenly thought they were only
that are not. This information must be in red font. Some required to disclose this information if they knew the
traders commented that stipulating the font colour was details of the previous registered owner. However, the
unnecessarily restrictive, given that these forms were Act provides that these details must be displayed by a
printed electronically and many traders did not have trader when they offer or display a used car for sale and
colour printers. They suggested that these details be does not make this contingent on these details being
required to be printed in bold instead of red font. known. Therefore, to avoid infringing the Act, where the
However, it was observed during the consultations that previous owner is unknown, traders can only offer or
many traders used pre-printed forms rather than display the vehicle for sale if they receive an exemption
printing them themselves. from compliance.
In considering this suggestion, the various costs and The Act currently provides that where a used motor
benefits must be examined. Relevant considerations vehicle has been brought from a place outside Victoria
include the costs to traders of a colour printer or for the purpose of sale, and the required particulars are
alternative means of satisfying the legislative provision, not known, the Director of Consumer Affairs may, by
whether these costs are passed on to consumers, and notice in writing, direct that such particulars need not
whether red font is more noticeable to consumers than be included in the Form 7 in relation to this particular
bold font. vehicle.
24 > 4.0 Regulation of conduct
Traders expressed concern regarding the interaction of Throughout the consultations, a number of participants
this requirement with the Commonwealth Privacy Act suggested alternatives to the current arrangements to
1988 and some thought they were in breach of this Act protect individuals’ privacy. These included:
by displaying previous owners’ details. The National
That previous owners details be kept in the dealings
Privacy Principles contained in the Privacy Act restrict
book, which could be made available to prospective
the way in which organisations can collect, use and
purchasers upon request, and upon proof (and
disclose personal information. However, s. 3 of the Act
recording) of identification. This would make the details
provides that it does not ‘affect the operation of a law of
less public and minimise the risk of misuse of this
a State or of a Territory that makes provision with
respect to the collection, holding, use, correction,
disclosure or transfer of personal information’. That previous owners could be able to ‘opt-out’ of
Therefore, traders who disclose the personal details of having their details made available to prospective
previous owners on a Form 7 are not in breach of the purchasers. A record of this opting out would have to be
Commonwealth Privacy Act. kept by the trader and provided upon request to an
inspector checking for compliance with the Act. Traders
The VACC, and some individual traders said that even if
and/or previous owners could be required to sign a
traders were exempted from complying with the
Commonwealth Privacy Act, this requirement was
inconsistent with modern community attitudes to, and Several traders suggested the adoption of a ‘vendor
expectations of, privacy. Some traders said although this statement’ which is required in Queensland. Among
information may be used by potential purchasers, there other things, this vendor statement could enable a
was also potential for it to be misused. For example, previous owner to indicate they did not want their
anyone could visit a car yard and obtain an individual’s details disclosed.
personal details or even compile a list for marketing or However, it was also pointed out that these alternatives
other purposes. would create more paperwork and introduce further
They claimed that they receive many complaints from complexities into the system.
previous owners about having their personal Perhaps of greater concern to traders than these privacy
information publicly displayed. However, Consumer concerns, are claims by the VACC, and many individual
Affairs Victoria has not received any complaints from traders that many traders find it hard to obtain this
consumers about this requirement. Similarly, the RACV information and are therefore forced to breach the Act.
and the Consumer Law Centre observed that they had
not received complaints from previous owners about the
Form 7. In fact, these organisations supported the
disclosure of previous owners details and noted they
were aware of consumers who used this information to
contact previous owners and find out information about
4.0 Regulation of conduct > 25
Traders gave a number of examples of where they are (c) Where auction houses, wholesalers or finance
either unable to obtain or have difficulty obtaining this companies are unwilling to provide this
information: information due to concerns that such disclosure
is in breach of the Commonwealth Privacy Act.
(a) Where cars are sourced from interstate –
particularly if they are sourced from finance Some traders said that they were losing trade
companies, auction houses or other traders – channels because of the refusal of some auctions
disclosure of previous owner’s details may be or wholesalers to supply this information. As
contrary to the Commonwealth Privacy Act as noted above, the Privacy Act exempts
there is no statutory provision exempting such organisations from compliance with that Act if
disclosure from compliance. their disclosure of information is required in order
to comply with state or territory legislation.
Some traders acknowledged that there was a
Therefore, wholesalers and finance companies
process for obtaining an exemption under the Act,
would be in breach of the Privacy Act unless
others did not seem to be aware of this provision.
disclosure of previous owners’ details is required
However, all traders argued that the current
under the Motor Car Traders Act, or other
process of applying to the Director for exemption
Victorian legislation. It is not clear that such
in each individual case is impractical, particularly
information is required, as wholesalers and special
given the time that this would take and the cost
traders (including finance companies) are exempt
of having unsaleable stock during this time.
from the definition of a motor car trader, and
Traders also noted that this process of exemption
only motor car traders are required to display this
is only available where vehicles are brought from
outside Victoria, and is not relevant to the other
(b) Where previous owners do not wish to disclose
such information. Recommendation 12
Traders said this was common, particularly in
relation to prestige cars or where the previous The inability of wholesalers and finance companies
owner did not wish to be contacted for some to provide previous owners’ details for inclusion in
reason. The above suggestions for enabling the Form 7 due to restrictions under the
previous owners to opt-out of this requirement Commonwealth Privacy Act should be further
would alleviate these concerns – provided of investigated.
course that traders were exempt from compliance
where there had been an opting out.
26 > 4.0 Regulation of conduct
Based on the difficulties of complying with this 4.1.2 Advertising (and application to
provision and changing social attitudes to privacy, the
VACC and the vast majority of traders attending the
focus groups called for the abolition of this requirement, The Act requires traders to display, and make clearly
at least in its present form. visible, their LMCT number at each place at which their
business is carried on. Although no traders had a
Although there is no indication of how many people
problem with this particular requirement, some
contact previous owners using these details, both the
wondered whether, and how, this applies to websites
RACV and the Consumer Law Centre (and a number of
operated by traders, and other websites which they use
traders) submitted that these details were used. For
to sell vehicles. For example, does their website
example, prospective purchasers may contact the
constitute a place of business? The VACC argued that
previous owner to find out if the odometer reading is
‘websites should carry exactly the same responsibilities
correct, or if the vehicle has been in an accident or
and obligations as LMCTs under the Act, who are
subject to water damage. However, some traders said
operating from a fixed location’.
many of the customers who they knew had contacted
the previous owner, did so in order to find out the The regulations further prescribe certain requirements in
trade-in price, with an expectation that they could relation to advertising of traders’ businesses and used
purchase the car for a similar price without regard to cars. In any advertisement or statement in relation to a
reconditioning costs. trader’s business of trading in motor cars, the trader
must include their LMCT number. Again, the VACC
One suggestion for amending the Act, apart from those
questioned whether this applied to sales over the
discussed above in relation to privacy concerns, was for
Internet. If it did not, the VACC submitted that it would
traders to be exempt from the requirement to display
be difficult for a consumer to differentiate a licensed
previous owner’s details where these details are not
trader from an unlicensed trader and the ambiguity may
known to the trader.
lead a consumer to believe they were dealing with a
licensee when in fact they weren’t. The VACC also
expressed concern that the Internet will create a growth
in consignment sales if the identity of the owner of the
car can be concealed.
The benefits and costs of requiring the disclosure The regulations relating to advertising of used cars are
of previous owners’ details in the Form 7 should more prescriptive and received more comment during
be explored in further detail. In particular, options the consultations. Under the regulations, traders are
allowing previous owners to ‘opt out’ or to required to include certain particulars in any
minimise the disclosure of personal information advertisement for the sale of a used car. These particulars
should be explored. include the cash price of the car and the registration
number (if registered) or the engine, chassis or vehicle
identification number (if unregistered).
4.0 Regulation of conduct > 27
Similarly, there are also restrictions on persons other
than motor car traders in relation to the advertisement Recommendation 14
of used cars for sale. Regulation 22(4) states:
Clarification of the application of this provision
If a person (other than a motor car trader…) publishes or
to traders advertising on the Internet is required.
causes to be published an advertisement offering a used
Also, an examination of whether internet
motor car for sale in a newspaper generally circulating in
advertisements by non-traders are captured by
the whole or any part of Victoria or in a motor car
regulation 22(4) – that is, the restrictions on
specialist magazine generally circulating in the whole of
newspaper and magazine advertising – is required.
Victoria, the person must include in the advertisement…
If necessary, the Act and Regulations should be
the cash price of the car and [registration number (if
amended to ensure traders are required to include
registered) or the engine, chassis or vehicle identification
their LMCT number in all advertisements,
number (if unregistered)].
regardless of whether the advertisements are
There is a penalty of 10 penalty units for failure to published on the Internet.
comply with this regulation. However, where the car is
for sale by auction, the cash price is not required to be
Another issue that was raised in the consultations was
included, unless it is available for purchase before the
the application and effect of this provision in relation to
auction, and the vehicle identifying details are not
advertising the sale of buses. One trader who only trades
required to be included if these are provided in writing
in buses, said that the market for buses was a national
on request to persons attending the auction.
market and that these advertising restrictions had an
Provision of this minimal and easily obtained unfair effect on Victorian traders. He said that the
information prevents traders enticing buyers to their nationally circulated trade magazines (and one in
dealerships by advertising desirable vehicles at value for particular) are the primary mechanism for buying and
money prices which do not exist or which, on arrival at selling buses in Australia.
the dealership, ‘have just been sold’. A requirement to
According to this trader, many of the advertisements in
include an LMCT number in the advertisement indicates
this national magazine do not comply with the
to buyers the conditions of sale with respect to
regulations in that they do not include the price of the
regulatory obligations. It also prevents traders posing as
bus or the vehicle specifications. In addition, many
private sellers in order to sell vehicles without meeting
traders do not include their LMCT number. There are
the regulatory requirements to provide information and
several aspects to this trader’s concerns. The first is
assurances to buyers.
whether traders and other persons, who conduct
Again, traders queried how this provision operates with business or reside either within or outside Victoria, are
respect to the Internet. Traders gave examples of cars required to comply with the regulations when placing
advertised for sale through national car sales websites these advertisements. The trader believed that he, as an
(such as carsales.com.au) or internet auctions sites (such LMCT in Victoria, was required to include the cash price
as ebay.com.au). Cars are advertised on these sites by and vehicle specifications when advertising in this
traders, private sellers and unlicensed traders, who may national magazine because it was available in Victoria.
reside in Victoria, interstate or overseas. Traders asked However, he was unsure whether traders in other states,
whether they were required to put these details on or non-traders were required to comply. Clarification of
advertisements on these sites, and if so, whether all the application of this provision to national magazines
advertisements on these sites should have these details. and traders (and other persons) outside Victoria would
28 > 4.0 Regulation of conduct
The trader said that, as he understood the regulations to The aim of this regulation is to ensure that consumers
apply to him but not to traders in other states, there was are not misled by advertisements excluding mandatory
an issue of unfair competition as a result of the charges into thinking they will pay no more than the
advertising requirements. He said he was at a advertised price. In a submission to the consultation
disadvantage compared to interstate traders by being process, the RACV expressed concern that dealer
required to include a price of a bus in his delivery charges were not always disclosed in
advertisements. The trader argued that as the market was advertisements and that enforcement of this regulation
so small, and there was effectively only one place to could be improved. In addition, the RACV commented
advertise buses, that if he were to purchase a bus and that where dealers did comply with this regulation,
refurbish it, the previous owner would be able to tell dealer charges were often in very small print and in an
what his mark-up was. inconspicuous place and it was unlikely that consumers
would notice them.
The bus trader argued for a level playing field, either
through the extended application of this provision to It should be noted that traders who fail to disclose dealer
interstate traders, or the abolition of this provision in charges in advertisements, or who include them in fine
relation to Victorian traders advertising in national print or in an inconspicuous position in the
magazines. He also called for greater enforcement of this advertisement, may be in breach of the Fair Trading Act
provision as it currently stands. First and foremost for misleading advertising. However, data obtained from
however, it is clear that clarification of the application of Consumer Affairs Victoria’s consumer enquiries database
this regulation would be beneficial. indicate that very few enquiries (less than 4 per cent) are
received from consumers regarding undisclosed charges
In the course of the consultations, comments were also
or misleading advertising.
made regarding Regulation 23, which requires traders
selling new cars to disclose the amount of any dealer The RACV noted that:
charges that are additional to the price advertised. This
Dealer delivery charges can add significant amounts to the
does not mean that these charges must be included in
price of a new vehicle above its advertised price… dealer
the price, only that the amount of these charges must be
charges alone can add around 10 per cent to the advertised
disclosed. Dealer charges, or ‘dealer delivery charges’ as
price on cheaper vehicles.
they are commonly known, include things like:
The RACV also observed that in addition to dealer
• the cost of transporting the vehicle to the dealer’s
charges, other ad-ons such as stamp duty and
registration can mean the ‘drive-away price’ is around 15
• the cost of cleaning the vehicle after transportation
per cent higher than the advertised price.
• boarding costs, which cover storage rental,
insurance and floor plan charges Dealer delivery charges can vary from dealer to dealer
• temporary registration costs and can be subject to negotiation. In some cases, dealer
delivery charges may even be waived by traders.
• petrol costs
However, the RACV suggested that these charges are
• the costs of a trade-in valuation.
often added on after negotiations had concluded and
that many consumers are unaware of these charges, or
think they are non-negotiable like Government stamp
It noted that in a typical transaction for the purchase of
a car, there are numerous components that may each be
open to negotiation including, the trade-in value of a
previous car, the sale price of the new vehicle, and dealer
charges. The RACV argued these various components
can be confusing for consumers and that traders should
have to advertise a single all-inclusive price for new cars.
4.0 Regulation of conduct > 29
It noted that the advertisement would not necessarily 4.1.3 Dealings book
result in this one price being paid by all customers, but it
The Act requires motor car traders to keep a ‘dealings
would allow customers to negotiate on a single price and
book’ containing certain particulars for each acquisition
it would be transparent in that customers would not be
and disposal, which are specified in the Regulations. The
faced with additional charges once a price had been
particulars required include the registration number,
make and type of vehicle, vehicle identification or
Conversely, advertising a single price would remove engine number, the name and address of the persons
transparency in the different components that make up from/to whom the vehicle was acquired/sold, the
that price. Consumers would be unable to see exactly roadworthy certificate details, the odometer reading and
what they were paying for. the details of any security interest. Another important
The VACC suggested that dealer delivery charges are detail that must be kept in the dealings book is the
simply cost recovery of expenses incurred by traders. signature of the person from whom the vehicle was
These charges are calculated using a formula and received.
necessarily vary from trader to trader. If prices were The dealings book and the records contained therein
‘all-in-one’, consumers could no longer distinguish the provide a paper trail of information, which can assist
dealer charges component of the price from the profit with dispute resolution, the disciplining of traders and
margin added by the trader. the tracking of stolen vehicles.
Rather than requiring traders to advertise a single price, Some traders questioned whether there was still a need
the transparency of dealer charges and consumers’ for a dealings book to be prescribed in the Act and
awareness of these could be improved by regulating the Regulations, given the amount of information now
way in which dealer charges are disclosed in recorded and kept by VicRoads. Some suggested that
advertisements. For example, traders could be required there was no longer a need for traders to keep
to include dealer delivery charges in a minimum of 10 information and that most of the information would
point font, or in a particular position in an never be accessed by anyone (especially in the auto-
advertisement. A requirement could also be imposed on recycling trade).
advertisers not to accept advertisements that did not
They argued that there was too much paperwork and
comply with such a requirement.
too much duplication within this paperwork, and that
The ACCC is currently developing guidelines for motor the Act and Regulations should be revisited to identify
vehicle advertising, which are likely to outline areas where the paperwork could be streamlined.
advertising practices relating to dealer delivery charges
One trader explained the process that traders often have
that may contravene the Trade Practices Act.
to go through when selling a car to another trader,
describing this process as ‘antiquated’ or ‘old-fashioned’.
He said that when a wholesaler sells a car to another
Recommendation 15 trader, this is usually arranged by phone. The trader then
sends a slip containing the necessary details from the
Most of the concerns regarding dealer charges dealings book to the wholesaler for their signature. The
could be alleviated by improved enforcement of wholesaler signs (or stamps) the slip and posts it back to
the current Regulation and perhaps by extending the trader, who then glues it in to the appropriate place
this Regulation to require dealer charges to be in their dealings book. In this situation, the traders’
disclosed in a minimum of 10 point font. compliance with the Act depends on the wholesaler
signing this slip and sending it back – traders are not
able to compel them to do so.
30 > 4.0 Regulation of conduct
Another issue that was raised in relation to the dealings
book was that of electronic record keeping. It was Recommendation 16
suggested that most traders now maintain electronic
records (primarily for GST and inventory purposes) and The inability of traders to keep only an electronic
there are a variety of software packages available that version was often raised as a concern throughout
enable an electronic version of the dealings book. The the consultations. Given the prevalence of these
Act allows traders to keep a dealings book in electronic concerns, the dealings book requirements should
form. However, traders are required to copy or print the be revisited, both in terms of their rationale and
entries relating to a transaction on to paper, which must whether the paperwork requirements can be
then be signed as prescribed, and kept together with improved. For example, a workshop involving
other printed entries relating to other transactions. traders, regulators and software companies could
Traders said this requirement of printing the electronic be organised.
dealings book and having it signed effectively
counteracted any benefit in having an electronic There is no clear indication of the benefit of
dealings book. They said it was impractical to do this requiring a physical signature in the dealings book.
and therefore, they must also maintain a physical Unless strong reasons can be provided as to why it
dealings book, which could be signed by the customer should be maintained, this requirement should be
in order to meet the regulatory requirement. It is unclear removed.
why traders claimed it was impractical to fill in all the
details electronically and print it in order to record a
signature. Perhaps it is because not all the details can be
filled in prior to the customer leaving the premises, or
perhaps there is a limitation in the current software
Many traders questioned why a signature was required.
They said any arguments that signatures were required
as proof of transactions were flawed. This is because
there was no way for traders to authenticate signatures if
they were sent in the mail (see the scenario described
above) and traders could not verify a signature if an
intermediary takes delivery of a vehicle on behalf of the
Some traders mentioned they already kept invoices that
contained signatures and said it did not make sense to
have a signature in the dealings book when all
information is already available in different forms. Is
there are reason why all information should be on the
one form (the dealings book) rather than having the
relevant information on multiple forms (such as the
roadworthy certificate, invoice and transfer form)?
4.0 Regulation of conduct > 31
4.1.4 Statutory warranties The statutory warranty does not apply to commercial
vehicles, motor cycles, vehicles bought at public auction,
The legislation requires traders to supply a mandatory
vehicles bought by motor car traders, special traders or
statutory warranty covering three months or 5,000
employees of traders. In a report prepared for the RACV,
kilometres (whichever occurs first) for used vehicles
the Consumer Law Centre recommended that used
which are less than 10 years old and have travelled less
motor cycles and commercial vehicles purchased
than 160,000 kilometres. The warranty is intended to
privately should also be subject to the statutory warranty
clarify the notions of ‘merchantable quality’ and ‘fitness
(where the vehicle falls within the relevant mileage and
for purpose’ contained in general legislation such as the
Fair Trading Act 1999 in relation to used motor vehicles.
Provision of a warranty improves buyers’ bargaining
position by providing them with some degree of
confidence in the reliability of the vehicle for which
they are negotiating. In effect, the warranty requires Traders should be required to provide a statutory
traders to supply vehicles that resemble the warranty for commercial vehicles that are less
representations they make regarding quality. These than 10 years old and have travelled less than
representations are made through mechanisms such as 160,000 km, where such vehicles are purchased by
the vehicle’s generally ‘polished-up’ appearance and private individuals.
through discussions with the buyer.
The warranty acts as a proxy for information on vehicle Although it is not open for the trader to waive the
quality by providing buyers with some assurance that statutory warranty, the trader may exclude certain
the vehicle is of reasonable condition given its age and defects under the Act by affixing to the car a notice
distance travelled at the time of sale. It is not intended describing the defects and a reasonable estimate of
to provide an assurance, or information on, the vehicle’s their cost of repair. However, the trader must still
likely condition at some time in the future and hence provide a roadworthy certificate.
only applies for a limited period. This is considered a
sufficient time for defects existing at the time of sale to Where the statutory warranty does not apply to the
become apparent and be repaired and also limits the vehicle due to its age or distance travelled, the Form 7
number of defects which may have been caused or displayed in the window of the vehicle must clearly state
exacerbated by the owner’s treatment. The trader is not that the statutory warranty does not apply.
responsible for repairs of such defects. Nor is the trader The statutory warranty provided by motor car traders is
responsible for repair of defects in the tyres, battery or separate from any manufacturers warranty that may still
prescribed accessories which include items such as: apply to the used vehicle.
audio equipment; body hardware or rear window
demisters which are not standard to the car; light globes The statutory warranty was not a major issue of concern
and sealed beam lights. raised during the consultations. Although some traders
commented that perhaps there was no longer a need for
The statutory warranty represents a minimum warranty it, given extended manufacturers warranties and the
that traders must provide on certain used vehicles. availability of purchasing an extended warranty. Also, a
Traders may offer extended warranties or warranties on few traders pointed out that this kind of statutory
vehicles where the statutory warranty does not apply if warranty was unique to used motor vehicles and that no
they wish to do so. The statutory warranty applies only other industry, including those dealing with similar
to newer used vehicles in recognition of the fact that at goods (such as yachts and boats) was required to provide
some cut off point, reflecting age and/or distance one.
travelled, the costs of providing an assurance that the
vehicle is not unreliable are excessive, even if the Some traders suggested that the removal of the statutory
warranty period is brief. warranty would have a positive impact in reducing the
number of old cars and improving the quality of
vehicles on the roads.
32 > 4.0 Regulation of conduct
The RACV also raised the issue of statutory warranties. It The Motor Car Traders Guarantee Fund Claims
claimed that, based on calls to its Motoring Advisory Committee expressed a further concern that some
Service, consumers often do not know what is covered consumers are misled into thinking that an extended
by the warranty, and in some cases are not even aware warranty applies to their vehicle due to the practice of
that there is a statutory warranty. There is no advertising extended warranties on the Form 7. It said
requirement under the Act for details of the statutory that some suppliers of extended warranties sponsored
warranty to be provided in the agreement for sale. printed Form 7s or advertised on them. Such practices
may give the impression that the car is covered by an
Although a purchaser must be provided with a copy of
extended warranty when it is not.
the Form 7, which states whether the car is, or is not,
covered by a statutory warranty, the RACV argues this is
not sufficient. It suggested that traders should be
required to provide information on what is and is not Recommendation 18
covered by the warranty, and how the warranty works.
For example, it suggested that many consumers were That options be examined regarding ways to
unaware that the warranty period extended if the improve consumers’ awareness of the existence
vehicle was being repaired during the initial warranty or otherwise of a statutory warranty and their
period. rights and obligations in relation to such
warranties. At a minimum, traders should be
Although the VACC has a standard form describing the
required to provide consumers with a statement
statutory warranty, not all traders provide this form to
of their rights and obligations under a warranty,
customers and there is no requirement under the Act for
where such warranty applies (similar to the
them to do so.
standard form supplied by the VACC).
The RACV also expressed concern that consumers did
not know that if they moved after purchasing a vehicle
and the vehicle needed repairs, they may be responsible
for the cost of transporting the car back to the place of
purchase in order for the repairs to be covered by the
Similarly, the RACV noted that some consumers were
not aware that the vehicle they were purchasing was not
covered by a warranty. This was particularly so in
relation to vehicles classified as commercial vehicles, and
which are therefore excluded from the statutory
4.0 Regulation of conduct > 33
4.1.5 Cooling-off period Buyers who terminate an agreement of sale during the
cooling-off period are required to pay $100 or 1 per cent
The Act provides that persons (other than motor car
of the purchase price of the vehicle (whichever is
traders) who purchase a used car are entitled to
greater). Further, if the purchaser has accepted delivery
terminate the agreement for sale anytime within 3 clear
of the vehicle but terminates the agreement within the
business days of signing the agreement. Unlike the
cooling-off period, the purchaser is liable for any damage
statutory warranty, this cooling-off period may be
occurring while the vehicle is in their possession. Due to
waived by the purchaser using a form prescribed in the
the financial penalty involved in cancelling sales, it is
unlikely that many buyers would enter into contracts
The cooling-off period does not apply to commercial with the prior intent of cancelling, but rather would use
vehicles, vehicles bought at a public auction or new the option as an ‘insurance’ reserved for unanticipated
vehicles (with the exception of off-trade-premises sales8 or exceptional circumstances only.
of new cars).
One trader suggested that the financial penalties for
The 3 day cooling-off period is primarily designed to terminating an agreement during a cooling-off period
remedy an information asymmetry which exists with should be higher. He said that, at present, purchasing a
regard to the contract and pressure selling which can car and returning it within the cooling-off period could
result in a purchaser entering an agreement where, on be used as a very cheap way of renting a car for a
cool consideration, it is apparent that they will be weekend. Although he acknowledged that he could ask
unable to discharge it. It counters consumer ignorance the customer to waive the cooling-off period, he said
of contractual terms and problems that may be this would look ‘dodgy’ and was not good business
associated with buyers having little opportunity to practice. Other traders commented that traders were not
carefully read or assimilate all details of a contract under any regulatory obligation to deliver the car during
presented to them at point of sale. the cooling-off period, and that if they had concerns
The cooling-off period provides buyers with a second regarding a purchaser’s legitimacy, they would keep the
chance to study the terms of the contract of sale and to car until the cooling-off period had expired.
seek independent advice on any terms which may be of Again, the RACV expressed some concern that
concern or which are not clearly understood. In many consumers were not always aware whether there was a
cases it allows buyers to organise finance and cancel an cooling-off period that applied to their purchase. It cited
agreement if suitable finance cannot be found. While it the following problems experienced by consumers
is likely that the bulk of buyers organise finance prior to calling their Motoring Advisory Service:
purchase, some may commit themselves to a purchase • the customer didn’t realise they had a cooling-off
that is beyond their budget. This may occur when period
encouraged by a trader who emphasises that a better • the customer didn’t realise they did not have a
vehicle can be purchased with minimal additional cooling-off period
finance. Traders have an incentive to up-sell for higher • the customer was told by the trader that they didn’t
revenue and often also have an incentive to up-sell in have a right to a cooling-off period when in fact
order to arrange additional or larger finance packages they did
which will earn higher commissions.
• the customer signed the waiver form without
During the cooling-off period, a trader is not permitted realising they had done so.
to sell or otherwise dispose of a vehicle which has been
Although information relating to the cooling-off period
given as a trade-in by the purchaser as part of the
is required to be included in the Form 7, there is no
agreement for sale.
requirement under the Act for either the cooling-off
period or a waiver of this period, to be specified in the
contract of sale.
8 An off-trade-premises sale includes situations where a trader takes a demonstration vehicle to a consumer’s residence or place of
business with the hope of making a sale. The rationale for having a cooling-off period apply to such sales is to prevent consumers
being ambushed by high pressure sales tactics.
34 > 4.0 Regulation of conduct
The RACV suggested that a statement (in bold) which
sets out the consumer’s right to the cooling-off period Recommendation 19
(and their obligations should this right be exercised), be
That options be examined regarding ways to
made a prescribed particular in the agreement of sale.
improve consumers’ awareness of the existence or
Alternatively, it submitted that at the very least, the
otherwise of a right to a cooling-off period and
current paragraph in the Form 7 should be changed to
how to exercise such a right. In particular, a
highlight the exceptions to the cooling-off period.
consumer’s right (or otherwise) to a cooling-off
Perhaps the font size of the relevant paragraph in the
period should be made a required particular in
Form 7 could also be increased.
contracts for sale.
The Consumer Law Centre, in a report prepared for the
RACV, also supported such an inclusion. It suggested Also, the extension of the cooling-off period to
that traders should have to advise the consumer of their new and commercial vehicles should be considered
right to cancel the agreement in a similar manner to with regard to the objectives of the provision.
that prescribed in relation to contact sales under the Fair
Trading Act. This would require traders to attach a notice
to the front page of the agreement informing them of
their cooling-off right together with information on how
to exercise this right.
The RACV pointed out that the cooling-off period also
applies to ‘off-trade premises sales’ of new motor cars,
yet there is no requirement for purchasers under such
circumstances to be informed of this right. Traders
selling new cars do not have to display a Form 7 in the
vehicle, and the presence or absence of a cooling-off
period is not a particular that is required to be included
in the agreement for sale. Both the RACV and the
Consumer Law Centre argued that traders should be
required to make this information known to consumers
at the time of purchase, perhaps in a form similar to that
outlined above in relation to used cars.
The Consumer Law Centre went a step further and
recommended that the cooling-off period be extended
to apply to new vehicles, as the same information
asymmetries and potential for pressure sales tactics can
arise in relation to sales of new cars.
A further point that was raised by the RACV and
Consumer Law Centre was that private purchasers of
commercial vehicles should also have a right to a
4.0 Regulation of conduct > 35
4.1.6 Roadworthy certificates 4.1.7 Consignment selling
The legislation requires anyone selling a registered motor Motor car traders are prohibited from selling or offering
car, whether a motor car trader or not, to provide a to sell a motor car by consignment, and from having a
current roadworthy certificate to the purchaser of the motor car in their possession for the purpose of selling it
vehicle. However, this section does not apply if the by consignment. The Act defines ‘selling a motor car by
vehicle is being sold to a motor car trader, or if the consignment’ as ‘selling, exchanging or otherwise
vehicle is sold at a public auction by a person acting on disposing of a motor car, or any interest in a motor car,
behalf of the owner of the car. as an agent for a person who is not a licensed motor car
trader or a special trader’. Therefore, traders are able to
The roadworthy certificate indicates to buyers that the
sell cars on consignment on behalf of other traders, for
vehicle satisfies the legal requirement for minimum
example where one trader sells a car from their lot,
levels of safety contained in the Road Safety Act 1986 and
which is a vehicle that has been traded in and is owned
that it is suitable for registration. This provides buyers
by another trader. The section also does not apply to
with a basic assurance that the vehicle, once purchased,
sales at public auction.
can be used immediately without undergoing
unanticipated repairs to bring it to the standard required The rationale for prohibiting consignment selling is that
for registration. it offers broad opportunities to defraud consumers by
allowing the possibility for traders to misrepresent the
Traders did not seem to have any concerns regarding sale price of a vehicle to the owner, or by allowing the
how this provision affects them. However, roadworthy possibility that sales proceeds will not be forwarded to
certificates were often raised in two contexts. The first the owner. A further objection to consignment selling is
was the exemption that applies when vehicles are sold at that it allows traders to effectively rely on the public to
auction. This issue is discussed together with other finance their stock. This practice may be particularly
exemptions relating to auctions under the ‘Auctions’ attractive to traders who are in financial difficulty.
heading below. However, if such dealers were to cease trading, there
would be a number of consumer losses that would have
The second context was a general suggestion that all
to be reimbursed from the Fund.
vehicle registrations and renewals should have to be
accompanied by a roadworthy certificate. It was said that Despite this rationale and concerns that consumers
such a requirement would improve the quality of would suffer detriment if consignment sales were
vehicles on the roads and make the roads safer. Many allowed, many traders noted that Victoria is the only
traders made comparisons with cars sourced from NSW, state that prohibits consignment sales. It should be
where roadworthy certificates are required, saying that noted that consignment selling was not prohibited in
these cars were much safer than the average car Victoria until 1985, following a review of the Act, which
registered in Victoria. found that consignment selling was causing problems
Although there was some opposition, most traders
seemed to support the current prohibition. Traders
generally recognised that there were problems when
consignment selling was allowed and said there was ‘no
point turning back the clock’. Traders in favour of the
current provision also said that consignment selling may
lead to confusion about other provisions of the Act
including responsibility for roadworthy certificates and
the applicability of (and liability for) the statutory
36 > 4.0 Regulation of conduct
A couple of traders questioned the rationale for a The VACC has recommended that this section be
prohibition on consignment selling in relation to reformed. Instead of requiring traders to ‘procure the
commercial vehicles, arguing that the rational did not cancellation of a security interest’, the VACC suggested
apply. One trader suggested that there should be some traders be prohibited from ‘selling, exchanging or
kind of legally recognised document that could cover otherwise disposing of a car if it has an interest recorded
consignment sales of commercial vehicles. This under the Chattel Securities Act 1987’. This suggestion
document could have provision for disclosing the sales arises because the VACC says that, ‘at times, it is difficult
price and agreed commission, and indicate agreement to ‘procure’ the cancellation of a security interest’.
by both parties.
A couple of traders noted that the current provision only
A number of traders indicated that they were aware of required traders to discharge the interest prior to sale,
traders who did sell cars on consignment and said there rather than at the time it was acquired. They said that
was a problem with enforcement of this provision. although most traders cancelled the security interest
within 48 hours, some traders could use a strict
interpretation of the provision to stock and offer cars for
4.1.8 Cancellation of security interests
sale in their yard that were effectively still owned by a
and obligation to provide clear finance company (similar to consignment selling). It was
title suggested that the Act could be amended to require
The Act requires motor car traders to procure the cancellation of the security interest within a reasonable
cancellation of any security interest that is registered time of acquiring the vehicle.
under the Chattel Securities Act 1987, before selling,
Alternatively, the Motor Car Traders Guarantee Fund
exchanging or otherwise disposing of a motor car.
Claims Committee suggested that the section be
Traders, like all other sellers of goods, also have an
extended to create an offence of:
obligation under the Goods Act 1958 to transfer good
failing to remit money to pay out a finance company (or to
title when they sell goods. In recognition of this
remit money to any other person) where the motor car
obligation and the possible detriment to consumers if
trader has agreed to do so (either in contract or verbally)
this is not met, the Motor Car Traders Act provides that
when purchasing a motor car from a consumer.
a traders’ failure to transfer good title is grounds to make
a claim against the Motor Car Traders Guarantee Fund. To determine if a car is subject to a security interest,
traders are able to check the Vehicle Securities Register
The requirement for traders to ensure cancellation of
(VSR), which is maintained by VicRoads. The VSR can
any security interest in a car provides the buyer with an
also be used to check that a vehicle has not been stolen.
assurance that the vehicle will not be re-possessed.
The VSR can be checked over the phone or at a
Importantly, it protects the previous owner from being
VicRoads office, and is available for both private
pursued by a financier for a debt which the trader
purchasers and traders’ use.
should have discharged. This is relevant for buyers who
have a vehicle they wish to trade-in as part payment for One trader said that he found the VSR difficult to
another vehicle. interpret and that it did not give him all the information
he required. For example, he said the VSR discloses
During the consultations, many people said that a
whether there are registered encumbrances on a vehicle,
trader’s failure to discharge security interests was one of
but there is no way of verifying who owns the vehicle as
the first signs that a trader was in financial difficulties.
the registration certificate may be in the name of a
They said that bad debt and non-compliance with this
person who is not actually the owner. In addition, some
section was one of the primary drains on the Fund. This
traders had concerns that other encumbrances, such as
issue will be discussed below in the Motor Car Traders
those under the Family Law Act, were not included in
Guarantee Fund section.
the register, yet may prevent a trader transferring good
4.0 Regulation of conduct > 37
Many traders also raised the issue of a finance A further issue that was raised by the VACC relating to
company’s obligation to cancel a security interest once the obligation on motor car traders to cancel security
the trader has paid the debt. The Chattel Securities Act interests and transfer good title was the difficulty in
1987 requires a financier to cancel a security interest determining such interests in relation to unregistered
within 14 days of the financier having knowledge of the motorcycles. According to the VACC, over 50 per cent of
interest being cancelled (by the trader). Traders generally motorcycles sold in Victoria are unregistered as they are
said 14 days was too long and was not necessary in the used in recreational off-road or agricultural applications.
age of electronic transactions. They said this time frame The Vehicle Security Register does not include
prevents them on-selling the car during this time information on unregistered vehicles.
because a purchaser would not be able to get finance on
The VACC submitted that there is no federal or state
the car owing to the uncleared encumbrance. A time
database that contains the Vehicle Identification
limit of 7 days was suggested as an alternative.
Numbers (VINs) of unregistered motorcycles in order for
The Australian Finance Conference (AFC) commented them to check any security interests and verify that the
on this suggestion, stating that, rather than a 7-day time motorcycle is not stolen. It said that this lack of
limit, it would prefer the current provisions of the checking mechanism ‘frustrates traceability and creates
Chattel Securities Act 1987 to be strengthened by: opportunistic or organised theft on a large scale’. In
(a) requiring the cancellation of a security interest addition, motorcycle traders argue it is unfair that claims
within 14 days of all money secured being paid can be made against them, which have serious adverse
out, and consequences for them, when the Government does not
(b) implementing a system of penalty notices and provide the necessary database to check title of
fines for late cancellation of security interests. unregistered motor cycles.9
The AFC noted that there were similar requirements to The motorcycle division of the VACC submitted that
this in NSW. they had approached both the Australian Department of
Transport and Regional Services (DOTARS) and the
National Motor Vehicle Theft Reduction Council
(NMVTRC) requesting the inclusion of VINs for
Recommendation 20 unregistered motorcycles on the national database.
However, DOTARS and the NMVTRC have not
The Chattel Securities Act should be amended to supported such inclusion, citing among other reasons,
require financiers to cancel a security interest the high cost. The VACC argued that such costs would
within 7 days of the financier having knowledge be offset by the reduction in costs associated with
of the cancellation of the interest by the trader. motorcycle theft.
This suggestion, being a federal issue, is beyond the
Should this recommendation not be adopted,
scope of these State consultations. However, it is open to
consideration should be given to amending the
the Minister to refer these comments to his federal
Chattel Securities Act as proposed by the Australian
counterpart for consideration at a national level –
although it would appear the issue has already been
considered by the Department of Transport and Regional
Services and the National Motor Vehicle Theft Reduction
Council and been dismissed.
9 In the course of the consultations, the Motor Car Traders Guarantee Fund Claims Committee recommended that a provision be
inserted into the Act enabling it to take into account the conduct of the parties when determining a claim (see section 8). The
inability of traders to verify clear title of motor cycles may provide an example of how such discretion could be exercised.
38 > 4.0 Regulation of conduct
The obligation to provide clear title is not contained in 4.1.9 Agreements for sale of new and
the Motor Car Traders Act, but in the Goods Act.
Therefore, excluding motor cycle traders from this broad
obligation does not seem an appropriate response to the The Act and Regulations require traders to include
difficulties faced by motor cycle traders in ensuring clear certain terms and conditions in agreements (or
title. The problem for motor car traders may lie more contracts) for the sale of new or used cars. These terms
with the ability of a person to make a claim against the and conditions are set out in schedules 3 and 4 of the
Fund for a traders’ failure to transfer good title. One Regulations.
possible approach may be to clarify that implications for By prescribing certain terms and conditions, the Act
a trader of such a claim against the Fund (such as ensures that the contract does not unduly favour one
suspension of a licence) will only result where the trader party to the transaction at the expense of the other. The
has failed to take reasonable steps to ensure that the required particulars on the sale of a new car are minimal
person selling the vehicle actually owns the vehicle. and include only identifying details of the employee
who negotiated the agreement on behalf of the trader,
the trader’s licence number, a description of the vehicle
sufficient to identify it, the engine number, price and
other charges and the manner in which these are to be
The agreement for the sale of a used car requires these
details as well as information relating to the registration
number, odometer reading (including whether the trader
believes it to be true), that the agreement is subject to
approval of finance in cases where this applies,
conditions relating to trade-in if relevant, and
termination conditions. Both types of agreement may
include additional conditions negotiated by the parties
to the transaction, provided that they do not reduce the
rights conferred by the Act.
Traders did not comment on the content of these
prescribed terms and conditions. However, the RACV
suggested, as discussed above, that information on the
statutory warranty and cooling-off period also be
included. Also, the Motor Car Trader’s Guarantee Fund
Claims Committee suggested that the contract should
state the date by which any security interest on a trade-
in car is to be paid off, and stipulate who is to be
responsible for the payment of the stamp duty and
Many traders commented on the agreements for sale in
the context of the recently introduced provision in the
Fair Trading Act 1999, which requires terms and
conditions in consumer contracts to be in a minimum
10 point font.
4.0 Regulation of conduct > 39
Prior to the amendments to the Fair Trading Act, many
traders used standard contracts prepared by the VACC, 4.1.10 Other issues relating to conduct
which used a font smaller than 10 point. These contracts requirements
could be printed on a double-sided foolscap page.
Following the introduction of the 10 point minimum, Although not presently a requirement of the Act, the
the VACC issued a new standard form contract that VACC and several individual traders asked that
complies with the Fair Trading Act. Although this consideration be given to the introduction of a
contract is still printed on a double-sided page, it is an mandatory Vendors Statement to be completed by a
A3 page. The timing of the focus groups seemed to vendor when selling a car to a trader (as in a trade in).
coincide with the release of this new contract format, The VACC submitted by including information
which generated some discussion at these focus groups. regarding the vehicle’s usage history, technical
specifications and general bona fides of the vehicle, the
It is not the intent of this report to comment on the
vendor statement could remove some of the uncertainty
contract prepared by the VACC. However, a number of
surrounding these issues and aid in dispute resolution.
broader issues relating to the contract were raised during
the discussions. As noted above, the statement could also be used to
provide vendors with a choice as to whether their
Traders are required to provide consumers with a copy of
particulars were displayed on the Form 7 or not. A
the agreement for sale once completed. Many traders
Vendors Statement is currently used by traders in
remarked that consumers rarely read these agreements
Queensland. It is not clear what additional benefit
and that it was just a waste of paper to provide them
would be gained from the introduction of a Vendor’s
with a copy. This paper wastage has just been
statement given the existing amount of paperwork and
exacerbated by the new requirement to have a
records that accompany a transaction. However, the
minimum 10 point font, as contracts now print out as 5
introduction of such a statement could be considered
pages, rather than 2. A number of traders suggested
when revisiting the dealings book and Form 7
alternative arrangements. These included:
requirements as recommended above.
• that consumers be given a (one page) summary of
the agreement instead of the full agreement, or A further issue raised by the VACC was the application
• that consumers be shown a copy of the terms and of section 37 – ‘Dealing with Young Persons’. The
conditions of the agreement (perhaps one section provides that
laminated on the wall) and asked to tick a box ‘A motor car trader must not, and must not purport to, buy
acknowledging that they have read them. from, sell to , give or take from in exchange or receive
possession of a used motor car from a person who is
The Consumer Law Centre and other consumer
apparently under the age specified in relation to the motor
representative bodies viewed the provision of the
car or a class of motor cars in which the motor car is
contract to the consumer as essential, and strongly
included in section 8 of the Road Safety Act 1986.’
opposed any reduction in this obligation. In addition,
they suggested that perhaps a summary of the main
terms and conditions (or even just a contents list)
should be provided as a supplement to the actual full
agreement. This could assist consumers in
understanding their rights and obligations and be likely
to reduce consumer complaints.
40 > 4.0 Regulation of conduct
The VACC submitted that it was unclear what was
meant by this provision, given that s. 8 of the Road
Safety Act was repealed in 1998. It pointed out that, at
common law, contracts entered into with persons under
the age of 18 are void, with the exception of contracts
for ‘necessaries’. This position is confirmed in sections
49–51 of the Supreme Court Act 1986. However, the
VACC also noted that Regulation 201 of the Road Safety
(Vehicles) Regulations 1999 provides that a person is
eligible to be the registered operator of a vehicle at the
age of 18 for heavy vehicles, and 17 years and 9 months
for motor cycles.
That section 37 be amended to reflect the repeal of
section 8 of the Road Safety Act and to clarify the
application of this provision.
4.0 Regulation of conduct > 41
Application of the Act
to auctions, wholesalers
Auctions, wholesalers and brokers were a major topic of A number remarked that the use of the words
discussion in each of the focus group meetings and one- ‘wholesale’ or ‘auction’ in trading names, particularly
on-one meetings with industry participants and when the licensees operate on a retail basis, must be very
representatives. confusing for consumers. For example, it was said that
use of the word ‘wholesale’ in a retail trading name
As noted in the previous section, auctions and
could be construed to be false, misleading, fraudulent or
wholesalers are currently exempt from complying with
deceptive as consumers may think they are getting a
some of the conduct provisions that apply to other
wholesale price. Vulnerable consumers may be
motor car traders. For example, cars that are sold at
particularly susceptible to any misleading marketing
public auction or by wholesalers do not have to have a
practices of traders.
roadworthy certificate and there is no statutory warranty
or cooling-off period. Participants also suggested that consumers were not
aware, or did not understand, the different restrictions
Traders expressed concerns that the wholesale, auction
that applied to different areas of the industry or the
and broker areas of the industry had developed to
circumvent the Act, and as a result, consumers were not
receiving the level of protection intended by the Act. The Business Licensing Authority recommended that
They said that having restrictions apply only to one way options for dealing with misleading and deceptive usage
in which cars are sold draws traders to other areas where of terms such as ‘auctions’ and ‘wholesale’ be
they can circumvent consumer rights and reduce considered. Options it suggested included:
compliance costs. Most argued that the growth of • use of condition making powers
brokers was particularly worrying as the rights of • enforcement under the Fair Trading Act
consumers when dealing with brokers was often unclear. • insertion of a generic provision in the Business
Many participants suggested that the law, and the Licensing Authority Act, or a specific provision in
existing licence framework, should be updated to the Motor Car Traders Act enabling the Authority
encompass these new practices, remove the current to refuse to grant a licence, or to require a licensee
loopholes and ensure consumer protection. to change its name, if it is satisfied that the name
Some participants argued that there were very unclear may mislead consumers.
lines distinguishing wholesale, retail and auction,
particularly given the growth of brokers in the industry.
For example, licensees with an auction endorsement
might also sell off the floor outside auction times.
5.0 Application of the Act to auctions, wholesalers and brokers > 43
Each of these suggested ways of addressing the use of
possibly misleading names has different advantages and
disadvantages. Neither of the first two suggestions would
necessitate legislative change – requiring instead the use
of the Authority’s existing condition-making power or
Consumer Affairs Victoria’s enforcement powers under There is no separate licence type for licensees wishing to
the Fair Trading Act. If the Fair Trading Act were relied sell vehicles by auction. However, the Act provides that
upon, the evidentiary burden required to establish a licensees may apply to the Business Licensing Authority
breach of the misleading and deceptive conduct, or for an endorsement to their licence authorising them to
misleading advertising provisions may prevent effective conduct sales of motor cars at public auction. As at
enforcement. 30 June 2004, there were 14 licensees with auction
The third suggested approach would require legislative
change – either of the Business Licensing Authority Act The Act also provides that motor car traders must not
or the Motor Car Traders Act. If the Authority were given sell cars at public auction unless they are authorised to
power under one of these Acts to refuse to grant licences do so. There is no restriction in the Act on licensees
or to require licensees to change their name, the selling cars by private auction to other licensees.
Authority would have a great degree of discretion. There Licensees with an auction endorsement may own the
would have to be an avenue to appeal any decision cars they sell at auction, or may sell cars on
made under this power, otherwise the Authority would consignment on behalf of others (the prohibition on
become the final arbiter of what names were potentially consignment selling does not apply to sales at public
misleading or deceptive to consumers. auction).
Once a licensee has obtained an endorsement on their
licence, there is no requirement that they actually
Recommendation 22 conduct public auctions. However, the Authority may be
able to use its condition making power to impose
The Business Licensing Authority and Consumer conditions or restrictions on the authority of the holder
Affairs Victoria should give consideration to use of to conduct sales by public auction. For example, some
the Authority’s condition making power and traders suggested that rather than being an endorsement
possible enforcement activity under the Fair Trading on a licence, the ability to trade by public auction
Act to prevent use of the terms ‘auction’ and should be a condition of a licence that precludes auction
‘wholesale’ where these would be misleading to businesses from selling in a normal retail capacity. The
consumers. If these options do not adequately Authority noted that it does require some licensees with
address the concerns raised, consideration should an auction endorsement, particularly new licensees, to
then be given to legislative change. provide documentation on the number of auctions
conducted and the volume of cars sold at auction. It
Typically, auctions, wholesalers and brokers were recommended that consideration be given to extending
discussed in the context of calls for a ‘level playing field’. the Authority's power to cancel an auction endorsement
That is, traders argued that the current exemptions, in to specifically cover circumstances where it is satisfied
particular in relation to auctions, were unfair and should the licensee is not genuinely carrying on an auction
be removed from the legislation. business.
Whether there should be a ‘level playing field’ is Some traders argued that unless licensees with an
essentially an issue of competition and requires an auction endorsement conducted public auctions within
examination of the rationale for current exemptions and a specified time limit, and on a regular basis, their
an assessment of whether the objectives of the auction endorsement should be cancelled. There was
legislation are being achieved. Auctions, wholesalers and some indication during the consultations that many
brokers are discussed in turn over the following pages. licensees with an auction endorsement did not conduct
auctions at all, or only conducted trade auctions.
44 > 5.0 Application of the Act to auctions, wholesalers and brokers
In addition, some traders argued that unless licensees One issue that would arise is at what point a roadworthy
had an auction endorsement they should not be able to certificate would be required. Under the Act, the
use the term ‘auction’ in their trading name. They roadworthy certificate must be ‘current’ or issued within
argued this would remove any confusion consumers the past 30 days. For a private sale, or a sale by a trader, a
may have about their rights when purchasing from such roadworthy certificate need only be provided at the time
licensees. Some also said that the use of the term of sale.
‘auction’ misled consumers into thinking they were
That is, a seller could wait until they have entered an
getting a better deal as purchases at auctions are
agreement to sell the car before obtaining a roadworthy
perceived to be cheaper than retail purchases.
certificate. However, where a car is offered for sale at
Broadly, the rationale for these exemptions is that auction, it is not available to the vendor to then obtain
consumers purchasing at auction typically do not expect the certificate. In order to provide a roadworthy
the same standard of service and are willing to accept certificate at the time of sale, a certificate must be
more risk regarding the quality of the car purchased. available when the vehicle is first put up for auction.
This may have two implications – the car may not be
The following exemptions contained in the Act relate to
sold within the 30 days the certificate is valid for, or the
car may be sold to a licensed trader or special trader
• Where a car is offered or displayed for sale at a
where a roadworthy certificate is not actually required.
public auction, the licensee does not have to
include the cash price of the car in the Form 7. The VACC mentioned that a feasibility study had
• Where a used car is advertised for sale by auction, previously been carried out whereby cars sold at auction
the advertisement does not have to include the without roadworthy certificates had a sticker placed on
cash price of the car, unless the car is owned by the them. They noted that the study found that the costs of
auction business or an associated business, or the such a program were too onerous. However, they
car is available for purchase before the auction. submitted that in NSW, an alternative system exists,
• Where a used car is sold by auction at a public which requires number plates to be removed from cars if
auction by a person acting on behalf of the owner they are sold without a roadworthy certificate to a
of a car, the motor car trader does not have to private individual.
provide a statutory warranty. The VACC submitted that all cars sold retail, whether by
• Where a car is purchased at public auction, there is the trade or at auction, should have to have a
no cooling-off period. roadworthy certificate as a matter of public safety.
• Where a used car is sold by auction at a public Traders expressed concern about the number of unsafe
auction by a person acting on behalf of the owner cars that ended up on the roads as a result of this
of a car, the motor car trader does not have to exemption. They also suggested that if unregistered cars
provide a roadworthy certificate. were sold at auction, the licence plates should have to be
• The prohibition on consignment selling does not removed (which does not always occur at present).
apply to sales at public auction. If vendors at public auctions were required to provide
As noted above, traders generally said that some, if not roadworthy certificates, this would increase the
all, of these exemptions were unfair and called for their attractiveness of auctions to purchasers. Consumers who
removal. would normally purchase a car from a retail trader
because they were unable to determine the quality of
The exemption that generated the most discussion was
vehicles sold at auction may commence purchasing at
that in relation to roadworthy certificates. Many traders
auctions if roadworthy certificates were provided. In
questioned why private sellers selling by consignment at
order to ensure consumers were protected, the integrity
auction did not have to provide a roadworthy certificate,
of the roadworthy testing and certificate system would
given that other private sellers are required to provide a
need to be monitored and upheld to prevent consumers
roadworthy certificate (when selling registered cars).
purchasing vehicles that were not roadworthy despite
Traders said that auctions should either have to provide
having a certificate.
roadworthy certificates, or remove number plates (and
de-register cars) prior to sale.
5.0 Application of the Act to auctions, wholesalers and brokers > 45
If traders argued for the removal of the roadworthy Although some of the provisions refer to where a car is
certificate exemption for auctions on the basis of unfair sold at auction ‘on behalf of the owner of the car’ it is
competition, such removal could in fact have the not clear whether this limits the exemption to cars sold
opposite effect of increasing the competitiveness of on consignment. This is particularly so, given that the
auctions. exemption in relation to advertising prices is expressly
excluded from applying where the car is ‘owned by the
Recommendation 23 Some traders seemed to be happy with the exemptions
for auctions where cars are sold on consignment.
Consumer Affairs Victoria should examine the However, they did not understand or agree with the
effects of introducing such requirements, with rationale for exemptions where cars are owned by the
consideration given to the objectives, and auction business. In this situation, the exemptions were
associated costs and benefits. often seen as a loophole enabling traders to circumvent
the consumer protection provisions of the Act.
In particular, the removal of the exemption from
It was evident that many of the focus group participants
providing a roadworthy certificate where a
did not fully understand the application of the Act to
registered vehicle is sold at public auction should
auctions, particularly in relation to sales prior to auction
be given serious consideration. However, regard
and cars owned by the auction business. Upon
must be had to the likely resulting effects on the
clarification of the existing provisions, it may be that
auction system and the objectives designed to be
traders’ criticisms of the legislation as being unfair and
achieved by the legislation.
inadequate in its differing treatment of auctions and
retailers may actually be criticisms of the enforcement of
There was also a lot of discussion as to whether the
exemptions applied where cars were available for
purchase outside auction times and whether they
applied where the licensee conducting the auction was
the owner of the car. And, if they did apply, whether There should be clarification of the existing
there was a sound rationale for their application. provisions in relation to auctions and an
Apart from the exemption from advertising prices, none examination of whether these are achieving the
of the provisions specifically stipulate whether they still objectives of the legislation.
apply where a car is available for sale prior to an auction.
Traders suggested there be some clarification of this. The At a minimum, the legislation should require Form
main issue that was discussed in this context was the 7’s on cars for sale at public auctions to include a
price on the Form 7. Many traders said that consumers price range, in the same way that real estate
were at a disadvantage where the price is not displayed advertised for sale at auction indicates an
because they are unable to compare prices. They were anticipated price range. Also, if the vehicle fails to
particularly concerned about this where brokers operate sell at auction, the passed in value should be
on the premises. It is unclear why there is no exception displayed on the Form 7.
to this exemption where the car is owned by the auction
business or is available for sale prior to auction (as there
is for the exemption relating to advertising prices).
46 > 5.0 Application of the Act to auctions, wholesalers and brokers
Apart from comments on the various exemptions,
traders also raised three other issues relating to auctions. Recommendation 25
• the supply of cars to backyarders through auctions Further consideration should be given to
• the sale of Government fleet cars at auction, and requiring auctions to record details of vendors
• dummy bidding. and purchasers of vehicles sold through their
auction business where this information would
Many traders viewed auctions as the main source of cars
assist enforcement activity.
for backyard traders. This is because where a car is
registered, it is possible to on-sell the vehicle without
transferring the registration. This means there is a
Some traders drew a distinction between vehicles that
limited paper trail through which unlicensed traders can
had been written off and other vehicles sold at auction.
get caught. Although traders acknowledged that there is
Traders said that backyarders could purchase repairable
an obligation on the purchaser to lodge the relevant
write-offs at auction, do some repair work and sell it to a
transfer documents with VicRoads within a specified
consumer who may have no way of telling the quality
time limit, they said that many did not.
of the repairs or that the car was a write-off. One trader
Traders at several focus groups argued that only traders gave the example of airbags, the operation of which is
should be able to purchase at auction. A number of undetectable without a computer, but which could have
traders mentioned that this was the law in the United serious consequences for the purchaser in the event of
States and said this would cut the supply chain to an accident.
unlicensed traders and reduce unlicensed activity.
It was suggested that auctions should only be able to sell
However, it is also possible that this suggestion may
written-off vehicles to licensed dismantlers or licensed
have been made because traders do not like the
body shops so that the public is protected from
competition provided by auctions, or because traders did
unlicensed traders. However, this would prevent
not think that auctions provided consumers with an
legitimate sales to members of the public who wished to
adequate level of protection, given the current
purchase these cars for parts, or who were capable of
exemptions in the Act.
repairing them satisfactorily for their own use. Without
As an alternative to allowing only traders to purchase at an indication of what proportion of private sales are
auction, traders suggested that auctions should be legitimate, and what proportion are sales to unlicensed
required to keep a record of who purchases at auction, traders, the impact of such a restriction cannot be
which could then be used to identify unlicensed traders. readily determined. Further, not all repairs carried out by
Traders may currently be required to keep this unlicensed traders would be unsatisfactory and present a
information under the dealings book requirement risk to public safety. If the risk to consumers as a result of
outlined above. Alternatively, it would be open to the non-traders being able to purchase written-off vehicles at
Authority to impose a condition on licences with an auction is low, then restricting such purchases would
auction endorsement to record (and report) such likely be over regulation.
information. However, it is not certain how much this
information would assist in the identification and
prosecution of unlicensed traders, given the difficulties Recommendation 26
in proving unlicensed activity. Also, the administrative
burden this would place on auctions could be quite Restricting the sale of written-off vehicles to
significant. trade-only auctions should be given further
consideration, subject to a deeper analysis of who
presently purchases these vehicles, what the risks
are to consumers and what the impact would be
on private purchasers.
5.0 Application of the Act to auctions, wholesalers and brokers > 47
The sale of government cars at auction was also an issue
that was raised at most focus groups. Some traders Recommendation 27
suggested that because the Government uses auctions to
dispose of its fleet cars, it has a conflict of interest in An investigation should be conducted into the
imposing any restrictions on auctions that might affect benefits to be obtained from the introduction of
its revenue, or enforcing such provisions where they dummy bidding restrictions at motor vehicle
currently exist. auctions, having regard to the differences between
the motor vehicle and real estate industries.
Some traders said it was against the spirit of the Act for
the Government to sell its fleet cars at auction. They said
the Government should be promoting consumer
protection, not denying purchasers of government
vehicles the various protections afforded under the Act
which would be available if purchased through a
licensed trader. A number of traders thought it was a
good idea if the Government only sold its cars to
LMCTs, even if this was by consignment at auction.
Although it was pointed out that the Government
currently puts to tender the right to purchase its cars,
and therefore traders were able to purchase government
fleet cars, traders said they did not have the capacity to
do so individually.
A number of traders suggested that the recently
introduced restrictions on dummy bidding at real estate
auctions should be extended to apply to motor car
auctions. In real estate auctions, following amendments
made to the Sale of Land Act 1962 in 2003, persons other
than the auctioneer are prohibited from bidding on
behalf of the vendor. In addition, if the auctioneer bids
on behalf of the vendor, they are required to announce
that it is a ‘vendor’s bid’. These amendments were
introduced to improve the protection afforded to
consumers when purchasing real estate, to prevent the
artificial inflation of prices and to ensure the auction
process is fair and transparent.
There are a number of features that may distinguish real
estate auctions from motor car auctions, which may
mean there are reasons why the dummy bidding
prohibition should not also apply to motor car auctions.
For example, real estate is typically of much higher
value, the real estate market is subject to greater price
fluctuations, and price may not be the primary concern
of vendors selling cars (for example, they may just want
to get rid of it without a roadworthy certificate).
48 > 5.0 Application of the Act to auctions, wholesalers and brokers
5.2 Wholesale licensees 5.3 Brokers
There is no separate ‘wholesale’ category of licence. Brokers in the industry was generally one of the first
However, the Business Licensing Authority may impose issues raised at each of the focus group meetings, and
a wholesale condition on a licence, which restricts the emerged as one of the main concerns of traders,
licensee to trading within the trade. A wholesale particularly in the metropolitan area. Again, a ‘level
condition is usually imposed at the request of a trader, playing field’ and perceptions of unfair treatment under
often because there is no need to demonstrate financial the Act was the main context in which brokers were
capacity to meet the warranty provisions of the Act. As raised.
at 30 June 2004, 12 per cent of licensees had a wholesale
Traders said that brokers were a big growth area in the
condition imposed on their licence.
industry, particularly in Melbourne. This growth may
It is important to note that wholesale traders, who only reflect a change in the market and an increase in
purchase from and sell to licensed traders, do not demand for brokers’ services from time-poor or non-
actually require a licence at all, as they are exempt from mechanically minded consumers. The emergence of
the definition of ‘trading in motor cars’ under the Act. brokers was explained by participants who said that
However, at the Motor Industry Forum held in March some traders used to source cars from auction houses for
2004, it was suggested there was an incentive to be
customers who had specific requests that they could not
licensed, even though this was not required, because
quite meet. For example, for the customer who says, ”I
stamp duty is not paid by licensees, but would be paid if
like everything about that car but the colour”, the trader
they were not licensed.
would arrange a similar car of the correct colour to be
Like auctions, traders who buy and sell wholesale are delivered to their premises for the customer to view and
exempt from some of the provisions in the Act. then, hopefully, purchase. Since this practice was
However, these exemptions are not specifically for potentially quite expensive for no return, it became
wholesale licensees, but rather are general exemptions more convenient for the trader to offer to take the
where cars are purchased by licensed motor car traders. customer to the auction house to view it there.
The rationale for these exemptions is that because Eventually, some traders found it most convenient to set
consumers are not involved in the transactions, there is up their operations at the auction houses.
no need to regulate them in order to protect consumers. Under the example given above, it may be that the
During the consultations, no one questioned the marketplace is evolving in response to consumer
exemptions that apply to wholesalers, as they did the demand and legislation that allows such practices may
exemptions that apply to auctions. However, wholesalers be to the net benefit of consumers.
were often raised in the context of brokers and also
In contrast, many traders argued that the growth in
unlicensed trading. Many traders expressed concern
brokers was a result of loopholes in the Act and
with the growth of brokers in the industry, and often
deliberate attempts to increase profits at the expense of
blamed wholesalers for their existence, saying that
without wholesalers, brokers would not be able to
operate. The issue of brokers is discussed below.
A number of general allegations were made that some
wholesalers were knowingly supplying unlicensed
traders, and were therefore in breach of the Act, which
makes it an offence to aid or abet an unlicensed trader. It
should be noted that a wholesaler who sells to the
public (including to unlicensed traders) is in breach of
their wholesale licence condition.
5.0 Application of the Act to auctions, wholesalers and brokers > 49
The term ‘broker’ does not appear in the legislation and Confusion regarding the application of the Act to
there seems to be a number of different variations in the brokers is illustrated in the following sample of
way brokers operate. For example, according to focus questions and issues raised at the focus groups:
group participants: • Why don’t brokers have to have a licence?
• Brokers may operate from a fixed location, for • How do brokers get a licence without ‘proper’
example, an office co-located at an auction house premises?
or in a wholesale premise and sell cars owned and • Why don’t brokers have to display a Form 7,
displayed for sale by the wholesaler. Alternatively, including a price?
they may operate from separate business premises • How can brokers advertise without an LMCT
where cars are not displayed for sale, and source number?
cars from a variety of locations, including auctions,
• How can brokers use wholesale floor stock when
wholesalers, traders and the Internet. Many
VicRoads won’t register a transfer from a
participants referred to brokers operating in the
second of these alternatives as operating ‘out of a
car boot using a mobile phone’. Many traders said that brokers did not exist when the
Act was last reviewed, or at least were not as prevalent.
• Brokers may act as agents for a particular trader, or
They expressed concern that brokers were not
may act independently.
adequately captured by the current regulatory
• Brokers may purchase cars from a wholesaler, a
framework. For example, if licensed under the Act they
trader or at auction then on-sell to a consumer.
would be required to display a Form 7 when offering a
Alternatively, they may merely introduce the
car for sale to a consumer. The question then arises
consumer to the wholesaler, trader or vehicle at
whether brokers are able or should have to do this when
the cars displayed to consumers are owned by a
• Brokers may receive a commission from the owner
wholesaler or someone other than the broker. Traders
of the car, or charge the purchaser (consumer) a set
argued that the same rationale in protecting consumers
fee for their services and these arrangements may or
from unexpected price increases and enabling them to
may not be transparent.
compare prices applied to brokers, and therefore they
• Brokers may also provide finance, or be associated
should be subject to the same legislative requirement.
with finance providers.
A number of focus group participants said that brokers
There were differing opinions to whether brokers were
targeted vulnerable and disadvantaged consumers
required to have a licence, and if so, whether they had
through advertisements offering cheap financing and
to comply with the same requirements as other traders.
use of slogans like:
It is clear that there is no single definitive answer to this
• “1000s of cars to choose from”
question given the different types of businesses that are
• “vehicles available at wholesale prices”
collectively referred to as brokers.
• “your choice of vehicle within 24 hours”
Confusion regarding the application of the Act may be
• “no application refused”
exacerbated by the fact that certain transactions of
• “best rates available” or “lowest interest rates”
finance companies are exempt from the definition of
‘trading in motor cars’ under the Act. These legitimate
transactions may be mistaken for illegal activity by
casual observers. There may be confusion about whether
brokers fall within this exemption because many brokers
also provide finance for purchasers.
Because the application of the Act to brokers is not clear
to traders, it is uncertain whether their concerns related
to alleged infringements and enforcement of the Act,
or to inadequacies of the legislation itself.
50 > 5.0 Application of the Act to auctions, wholesalers and brokers
Several participants also alleged that some brokers use
unfair practices, such as driving people around until
they wear them down and convince them to purchase a
Given that so many participants raised the issue of
brokers, and that this area of the industry appears
to have emerged only recently, it is recommended
that further work be carried out on the issue,
including the following:
• a clarification of how the existing provisions
apply to the various practices of brokers, and
• once the application of the existing provisions is
clarified, the adequacy of the provisions in
protecting consumers who deal with brokers
should be assessed, and
• if found to be inadequate, options for legislative
change should be identified and examined,
including the possibility of restricting brokers to
operating only as introduction agents.
5.0 Application of the Act to auctions, wholesalers and brokers > 51
Broadly, issues raised during the consultations relating to A person who buys, sells or exchanges, or offers to buy,
compliance and enforcement can be separated into two sell or exchange, 4 or more motor cars in any period of
categories: 12 months (whether as a principal or as an agent) is
• enforcement of the Act against unlicensed traders, deemed to be a motor car trader… [unless that person] can
and prove that she, he or it did not, in that period, carry on the
• ensuring compliance with the Act by LMCTs. business of trading in motor cars and did not hold herself,
himself or itself out as carrying on the business of trading
Each of these categories is discussed separately below.
in motor cars.
It is important to note that a person who buys, sells or
exchanges less than 4 cars in a 12-month period may
6.1 Unlicensed traders still be found to be a motor car trader. The section also
clarifies that ‘an offer to sell includes an invitation to
treat and the publishing (or authorising the publication)
of an advertisement’. The VACC recommended that this
Unlicensed trading, or ‘backyarding’ as it is commonly
be further clarified to include internet-based advertising
referred to, was among the main issues that were raised
by the insertion of the phrase ‘including publishing by
during the consultations. The issue came up at every
focus group meeting and in all one-on-one meetings
with industry participants. It was certainly an issue that
traders felt strongly about and the vast majority
expressed concern with the current level of unlicensed Recommendation 29
As noted above, the Act makes it an offence to carry on The inclusion of publishing an advertisement by
the business of trading in motor cars without a licence. electronic means should be clarified as constituting
The penalty for such an offence is 100 penalty units for an offer to sell a motor car for the purposes of
each motor car bought, sold or exchanged or offered to section 7A.
be bought, sold or exchanged. In addition to, or in
substitution for this penalty, the court may order the
person to pay a fine of 15 per cent of the sale price of A number of participants also queried whether auto
each motor car for which the offence was committed. parts recyclers and car removalists were required to have
a licence. Most, including the VACC, argued that
Although the Act exempts certain transactions from the
because such businesses purchased, exchanged or sold
definition of trading in motor cars, it also deems certain
used or damaged vehicles, they fell within the definition
activities to be trading in motor cars for the purposes of
of ‘trading in motor vehicles’.
the Act. Section 7A of the Act provides that:
6.0 Compliance and enforcement > 53
Many traders said that there were numerous auto parts In addition to these powers under the Fair Trading Act,
recyclers and car removalists advertising without LMCT the Motor Car Traders Act provides that the Director
numbers. Throughout the consultations, traders may apply to the Magistrates Court for an injunction to
provided many examples of advertisements offering stop a person trading in motor cars where they are not
‘cash for cars’ that did not contain LMCT numbers and licensed to do so.
criticised CAV’s lack of enforcement in this area. Some
In 2003-04, the following enforcement outcomes were
traders suggested that many auto parts recyclers merely
achieved against unlicensed traders:
had second hand dealers licences rather than licences
• 5 successful prosecutions under the Act, with fines
under the Motor Car Traders Act.
Although the rationale of protecting consumers and • 4 injunctions were obtained, and
minimising consumer detriment may not apply as much • 2 people were required to enter into enforceable
in the auto recycling industry because cars are generally undertakings.
not sold to consumers, other reasons for bringing them
Despite this enforcement activity, most traders attending
within the scope of the Act were proffered. These
the focus group meetings argued that there was not
included that unlicensed operators generally sold cars for
enough enforcement activity against unlicensed traders.
scrap metal rather than recycling, and if cars were
recycled, they may not be recycled in a way that Many traders said they were not aware of this
minimises environmental impact. Several traders said enforcement activity. The typical sentiment of traders
that if auto-recyclers were required to hold licences, they was well expressed by one trader who said he doubted
should have a different category of licence and be there had been more than $50,000 in fines imposed in
subject to a lower annual fee as there was less likely to be the past five years. Traders generally said they wanted
claims against the Fund because they did not sell to more information about enforcement activity, and that
consumers (see discussion in section 3). it was not sufficient only to include it in the Annual
Report, rather than send it directly to traders.
Most attendees said unlicensed traders were prevalent in
Recommendation 30 the industry and whatever the current level of
enforcement activity, it was clearly insufficient. Many
argued that the lack of enforcement activity had
That it be made clear that auto-recyclers and car
rendered the Act ineffective in protecting consumers.
removalists who purchase vehicles from the public
In addition, they said that without adequate
are required to hold a licence.
enforcement, there was an incentive for licensees to
surrender their licences and trade unlicensed as the
absence of compliance costs would greatly increase
Unlicensed traders pose a risk for consumers because
they do not provide the legal protection afforded by
LMCTs and can therefore place consumers’ money at Traders said a large proportion of private to private sales
risk. For example, consumers do not receive a statutory involved unlicensed traders and pointed to the growth
warranty, nor are they entitled to a cooling-off period. in these sales over the last five to ten years as an
Traders also said that unlicensed traders were more likely indication that unlicensed trading was also more
to tamper with odometers to mislead consumers in prevalent. They expressed concern that consumers did
order to obtain higher prices and profits. not understand the risks involved in purchasing from an
unlicensed trader. Some suggested that Consumer Affairs
A number of different enforcement actions may be
Victoria should increase its efforts to raise consumer
undertaken against unlicensed traders. Under the Fair
awareness of these risks and of the benefits of
Trading Act 1999, the Director of Consumer Affairs has
purchasing from a licensed trader. The VACC noted the
the power to prosecute breaches of the Act, and also has
brochure ‘Better Car Deals’, which was a joint initiative
the power to require persons to enter into enforceable
of Consumer Affairs Victoria and the VACC, was a good
undertakings (for example, undertakings that they will
example of how the message can be distributed.
comply with the relevant legislation in the future).
54 > 6.0 Compliance and enforcement
A number of traders highlighted the loss of government
revenue from GST and stamp duty where cars are
6.2 Compliance with the Act by
purchased from an unlicensed, rather than licensed licensed motor car traders
trader. GST is not paid because unlicensed traders are not
registered businesses with an ABN and although stamp
duty is paid when registration is transferred, the amount
A number of different options are available to ensure
paid is based on the value of the car, which is often
that licensed traders comply with the licensing
underestimated by unlicensed traders. Traders pointing
provisions and conduct requirements imposed under the
to this loss of revenue said they thought it should be an
Act. For example, traders not complying with the Act
incentive to enforce the Act and argued that the gains in
may face monetary penalties or administrative
revenue would more than offset any additional
sanctions, such as cancellation or suspension of their
resourcing costs required to increase enforcement. The
extent of underestimation is not known. Therefore, it is
impossible to determine whether the resourcing costs The following actions may be taken under the Act:
would be offset by additional stamp duty revenue. It was • The Director may prosecute breaches of the Act
suggested that significant underestimation of vehicle (such as failure to comply with the conduct
value and resulting underpayment of stamp duty is not requirements), pursuant to his powers under the
a problem. This is because VicRoads currently uses the Fair Trading Act. Among the remedies available are:
Glass’s guide as an indication of the value of the vehicle – substantiation notices – the Director can require
and queries any transfers where the value recorded is any person making a representation in trade or
significantly different. commerce concerning the sale of goods to
The VACC and some individual traders commented that substantiate claims made
the penalties for unlicensed trading were not high – show cause notices – the Director can seek
enough. They submitted that current fines did not act as persons who make representations in the course
a disincentive and many told anecdotes that they had of trade and commerce to show cause why their
seen unlicensed traders back at auctions purchasing cars conduct should not be treated as in breach of
a week after they had been warned or prosecuted. The the Fair Trading Act
VACC called for the introduction of a minimum penalty – corrective advertising orders
of 10 penalty units for each car bought, sold or – cease trading injunctions
exchanged. A number of traders also suggested there – enforceable undertakings
should not be a maximum penalty stipulated in the Act. • The Director may apply to the Magistrates Court for
Many did not understand why all identified unlicensed an injunction order.
traders were not prosecuted, and instead received • Infringement notices may be issued for certain
warnings or injunctions or were only required to provide offences specified in the Regulations, with each
undertakings. attracting a penalty specified in the Regulations.
Penalties for unlicensed trading should be
6.0 Compliance and enforcement > 55
• The Director or Chief of Police may apply to the • The automatic cancellation of a licence following
Tribunal (VCAT) to conduct an inquiry to the death of a licensee (in the case of a sole trader);
determine whether there are grounds for taking or the deregistration of a company (in the case of a
disciplinary action against the licensee. Such company licensee); or the dissolution of a
disciplinary action may include: partnership (in the case of a partnership licensee).
– a reprimand • The expansion of offences that can attract
– an order to pay a penalty infringement notices to include other offences
– suspension or cancellation of licence relating to the licensing functions of the Authority
– a requirement that the trader enter into an and breach of licence conditions. For example, for
undertaking to perform, or not to perform, failure to produce a licence for endorsement,
certain tasks variation or revocation of a condition or restriction
– imposition of a licence condition imposed on a licensee (as required under s. 1510.
– an order to pay compensation. • The expansion of the Authority’s powers to include
the power to issue infringement notices relating to
• The Business Licensing Authority may impose
offences under Part 2 of the Act (dealing with the
conditions on a licence, or
licensing scheme), and
• In some circumstances, there is automatic
• The expansion of the Authority’s powers to include
suspension of a licence.
the power to issue show cause notices to a licensee
In 2003-04, four licensees were prosecuted under the Act
if the Authority is satisfied that any of the grounds
for offences including odometer tampering, failure to
for disciplinary action are present. The notice
discharge security interests, and non-compliance with
would require a licensee to show cause why the
licence conditions. In the same period, 33 infringement
licence should not be suspended. The Authority
notices were issued to licensed motor car traders.
said a decision to suspend following a show cause
The provisions relating to disciplinary action and
notice would be reviewable by VCAT.
compliance with the Act by LMCTs were not typically
raised at the focus group meetings, with traders’
concerns directed more toward unlicensed trading.
However, the Authority proposed a number of 6.3 Consumer Affairs Victoria’s
recommendations relating to clarification or enforcement strategy
amendment of the legislation in relation to disciplinary
action. Where amendments were proposed, the
Authority asked that consideration be given to Apart from an across-the-board criticism that Consumer
amending the Business Licensing Authority Act rather Affairs Victoria was not doing enough there were also
than just the Motor Car Traders Act. The Authority’s more specific issues raised relating to Consumer Affairs
proposed amendments were: Victoria’s enforcement strategy.
• The amendment of the Act to impose a maximum
As noted above, there was a general criticism that
period on the suspension of a licence, after which
Consumer Affairs Victoria was not doing enough to
the licence is cancelled.
enforce the Act, particularly in relation to unlicensed
• Where a business is conducted by an administrator
traders. At the Motor Industry Forum in March 2004,
or executor as representative of a licensee who has
Consumer Affairs Victoria announced a renewed
had their licence cancelled, clarification of whose
enforcement approach to unlicensed trading, saying it
licence the business is conducted under is required.
would pursue both civil remedies in the form of fines
(15 per cent of the sale price of each car) and criminal
prosecutions and court imposed sanctions.
10 The Authority also suggested extension of the offences that attract infringement notices to include sections 16(9), 17, 18, 19,
19A and 21.
56 > 6.0 Compliance and enforcement
Some traders who attended the forum, and who Some said they had tried to report infringing activity,
subsequently attended a focus group meeting, applauded but they did not know who to contact, or how to
this new approach. However, they often commented contact them (one trader said he spoke to four officers
that they had not seen any evidence of this new before anyone wanted to talk to him). Of those who had
strategy. provided information, many said they did not receive
any follow up (despite being told they would) and when
Some traders noted that, at the Forum, Consumer Affairs
they contacted Consumer Affairs Victoria again they
Victoria outlined a number of investigations that were
were told the issue was not being pursued without any
occurring at the time, yet six months later they had not
adequate reasons being provided. One trader said that if
heard any more about these investigations or their
Consumer Affairs Victoria did not have the resources to
outcomes. Many expressed frustration at the slowness of
follow up the information provided by traders, they
the process and the lack of information provided to
should at least pass it on to the Police who can
traders about progress and eventual outcomes.
investigate before the evidence disappears.
However, the Shepparton Car Dealers group criticised
Traders often said they thought Consumer Affairs
wider publicity of enforcement activity in newspapers,
Victoria’s enforcement activity was unfairly biased
saying traders acting within the law were tarnished with
towards them rather than unlicensed activity because
the same brush as the ‘shonky’ dealers, which was
they were ‘easy targets’. A couple of traders said
detrimental to their business and reputations. They said
Consumer Affairs Victoria officers had told them they
publicity should be kept within the trade and that the
concentrated on traders because it was ‘too hard’ to
media and public at large did not need to know.
prosecute unlicensed traders. These sentiments were
Many traders wondered why the level of enforcement widely held among the traders who participated in the
was so low, given that it is clear to them when illegal forums. However, it should be noted that two of the
activity (both licensed and unlicensed) is occurring. focus groups occurred not long after Consumer Affairs
Some traders recognised they were not aware of what Victoria had undertaken enforcement activity in the
was involved in a prosecution and it is suggested that area. Further, following Consumer Affairs Victoria’s
greater communication with the industry may resolve enforcement action in September, traders in Shepparton
some of these issues and improve relationships. requested a meeting as part of the consultations to raise
A number of theories were put forward for the perceived their concerns.
low level of enforcement including that CAV had There was mixed opinion regarding these regional
insufficient resources, or that the investigators did not enforcement activities. Although some traders said it was
understand enough about the industry to be able to the first time they had ever seen any sign of an inspector
analyse the issues and detect illegal activity. In relation and viewed it as a positive indication that Consumer
to the latter of these arguments, they said unless Affairs Victoria was enforcing the Act, others said it was
investigators had a detailed understanding of the just ‘revenue raising’ and unfairly targeted those who
industry, including the paperwork and practicalities of were trying to comply with the Act. Most seemed to
trade, it was easy for people to operate illegally and pass think that unlicensed trading was more of a concern for
themselves off as operating within the law. consumers than licensed traders and therefore should
have been accorded greater priority. However, an
Many of the attendees at the focus groups said they
alternative view is that because consumers do not
would be happy to provide Consumer Affairs Victoria
generally expect to receive any protection when they
with information regarding illegal activity, in particular
deal with unlicensed traders, illegal or unscrupulous
unlicensed trading. However, there were generally
conduct of licensed traders (where consumers do expect
traders at each focus group who said they had provided,
protection) is a bigger concern.
or attempted to provide, Consumer Affairs Victoria with
information and were disillusioned with the response Many traders expressed resentment toward the
they had received from Consumer Affairs Victoria. inspectors who undertake these regional enforcement
activities. Traders said inspectors were never available to
help them or to explain the Act or traders’ obligations
under the Act.
6.0 Compliance and enforcement > 57
They were not interested in assisting those traders • placing odometer readings on the portion of the
genuinely wishing to comply with the law, but were roadworthy certificate that goes to VicRoads, which
interested only in imposing fines and getting revenue. could then be entered into their database and used
as evidence to prove odometer tampering
It seems that implementation of two things would help
ease traders’ concerns in relation to compliance and • increased monitoring of advertisements, for
enforcement: evidence of unlicensed trading and to ensure
licensees complied with the advertising
• promotion of a contact point (including phone
requirements in the Act (disclosure of LMCT
number) within Consumer Affairs Victoria who
number, vehicle details and price)
could assist traders understand the Act and who
could receive information from traders on alleged • establishment and wide publication of an illegal
illegal activities, and trading hotline so unlicensed traders are aware that
their activities are being observed and are reportable
• regular communication on enforcement activity,
either through emails, letters or a website traders • increased coordination and cooperation between
could access. Consumer Affairs Victoria, Vic Police, VicRoads,
and VIV testers
Implementation of the above mechanisms to improve
• lowering the burden of proof for unlicensed trading
communication with traders would not be without cost.
• that a system be established whereby persons
Therefore, it is reasonable for the adoption of these
wishing to sell a car within six months of the
measures to be accompanied by an increase in licence
purchase date must complete a statutory
fees to cover the costs of these activities.
declaration saying they are not trading in motor
cars. (However, it is not clear where this declaration
6.3.1 Suggestions for improving would be lodged)
enforcement and compliance • that an offence be created prohibiting unlicensed
At each of the focus group meetings, traders put forward traders from selling cars on consignment. Although
a number of ways in which they believed enforcement this was not expressly stated as a measure to curb
of the Act could be improved. Although targeted more unlicensed activity, this recommendation by the
toward the prosecution of unlicensed trading, some of VACC is likely aimed at catching backyarders who
these suggestions were also said to be relevant to sold cars to consumers without first transferring the
improving enforcement of licensees’ compliance with vehicle into their own name.
the Act. Most of the above suggestions are beyond the scope of
Suggestions included: these consultations as they involve other agencies not
• monitoring of VicRoads counters, processing of within the consumer affairs portfolio. However, these
transfers and registration of vehicles comments have been included for consideration by the
relevant agencies involved. The suggestion that
• monitoring of roadworthy testers and who they
odometer readings be included on both portions of the
issue roadworthy certificates to
roadworthy certificate and recorded on the VSR received
• making it an offence for a roadworthy tester to
wide support from traders during the consultations. This
issue, or even to test, a vehicle suspected of being
inclusion is considered to have potential and it is
presented by, or on behalf of, an unlicensed trader
recommended that VicRoads give consideration to its
• monitoring of the Vehicle Identity Validation (VIV) implementation. Where the suggestions involve the
test central booking system and frequency searches enforcement activities of Consumer Affairs Victoria,
of the booking database11 regard should be given to these when developing
11 Vehicle Identity Validation Inspections are required when registering a statutory write-off (for cars written off prior to 1 May
2002) or repairable write-off (for cars written off after 1 May 2002). The purpose of the certificate is to ensure that the identity of
the repairable write-off is that of the previously damaged vehicle, and not a re-birthed stolen vehicle.
58 > 6.0 Compliance and enforcement
A major theme of the consultations was traders’ Consumer Affairs Victoria has a licensing branch which
interaction with government agencies. Although not to assists the Authority with the administration of the
do with the legislation itself, these interactions relate to licensing scheme pursuant to the arrangement
the implementation and administration of the mentioned above. Other areas of Consumer Affairs
regulatory framework and are an important part of the Victoria also have a role in the regulation of motor car
daily operations of a motor car trader. traders, including the policy area and, in particular, the
compliance and enforcement branch, which is
The main agencies dealt with are the Business Licensing
responsible for disciplinary action and prosecution under
Authority, Consumer Affairs Victoria and VicRoads.
the Act. Traders’ comments on Consumer Affairs
These agencies are discussed below. Traders may also Victoria’s enforcement activities were outlined above.
have interaction with the Motor Car Traders Guarantee This section will focus on comments about the
Fund Claims Committee, which is discussed in the administration of the licensing scheme.
context of the Motor Car Traders Guarantee Fund in
The relationship between the Business Licensing
Authority, Consumer Affairs Victoria and the Motor Car
Traders Guarantee Fund Claims Committee did not seem
7.1 Consumer Affairs Victoria to be well understood by individual traders who
participated in the consultations. This may be in part
and the Business Licensing
because there have been changes to the structure of these
Authority organisations during the lifetime of the legislation. For
example, when the Act first commenced in 1973, there
was a single body – the Motor Car Trader’s Committee –
The Business Licensing Authority is responsible for that performed all the functions now performed by these
administering the licensing scheme and maintaining a three organisations. Also, Consumer Affairs Victoria has
register of motor car traders. The Authority has the power had a series of name changes in this time and has been
to issue licences and to impose conditions on licences. known at different times as the Office of Fair Trading,
However, it does not have power to take disciplinary and Consumer and Business Affairs Victoria.
action. Pursuant to its powers under the Business Licensing During the consultations, traders referred to Consumer
Authority Act 1998, the Authority has entered into an Affairs Victoria by a variety of names, but most
arrangement with Consumer Affairs Victoria for commonly as the Office of Fair Trading, ‘the Committee’,
Consumer Affairs Victoria staff to assist the Authority. or ‘the Fund’. Such mistaken names indicate that
Consumer Affairs Victoria and its role are not widely
known amongst traders. This lack of understanding of
Consumer Affairs Victoria’s role lends support to traders’
main criticism that Consumer Affairs Victoria does not
communicate enough with traders.
7.0 Interaction with government agencies > 59
Some traders noted an improvement in communication
in the past year, with activities such as the Motor Recommendation 32
Industry Forum in March, which was a collaborative
effort of Consumer Affairs Victoria and the VACC. The A central contact point for all matters relating to
VACC noted in its submission that ‘the flow of the regulatory scheme, including licensing,
information to traders has improved, especially with the compliance and enforcement, should be established
establishment of the forum earlier this year, and VACC and promoted. This contact point could be within
would recommend that further forum events be held in the Business Licensing Authority or within
order to maintain the communication’. Consumer Affairs Victoria.
Some traders also commented favourably on the
decision to undertake this consultation process. Positive
feedback about the consultations was received at each of 7.1.2 Consumer Affairs Victoria’s
the focus groups, and those traders in regional areas contact with traders
particularly welcomed the opportunity to be involved.
Generally, traders said that Consumer Affairs Victoria did
However, despite these efforts, many individual traders
not communicate with traders enough and often said
expressed dissatisfaction with Consumer Affairs Victoria
they wanted ‘more for their money’. Many said what
and its activities.
little contact there was, was generally in the negative
Comments regarding Consumer Affairs Victoria’s context of compliance and enforcement. A number of
activities can be separated into two broad categories – traders claimed they had had no contact with Consumer
traders’ contact with Consumer Affairs Victoria; and Affairs Victoria until the recent series of enforcement
Consumer Affairs Victoria’s contact with traders. activities. As noted above, many traders felt targeted by
these actions and resented Consumer Affairs Victoria for
7.1.1 Traders’ contact with Consumer contacting them only for what they saw as revenue
Affairs Victoria raising.
Some traders remarked that, at times, they had wanted Many traders saw an opportunity for Consumer Affairs
to find out some information about the licensing Victoria to improve its relationship with traders through
scheme or the Act and Regulations, but did not have the provision of regular information such as:
any relevant contact details. Other traders said they had • information aimed at training licensees and
contact details but were confused about whether to improving their knowledge and understanding of
contact the Authority, the Claims Committee or the various pieces of legislation, together with
Consumer Affairs Victoria, and which area within advice on good customer service and business
Consumer Affairs Victoria. There were also a number of practice
traders who said they had tried calling the Authority or • information on compliance and enforcement
Consumer Affairs Victoria, but there was never any activities
answer. • details of disciplinary action taken
Traders generally said they would like to have a contact • details of claims against the fund, including
point within Consumer Affairs Victoria, who they said amounts claimed and the types of traders these
could act as a central contact: claims are paid out against.
• For advice regarding compliance with the Act and • information on licence applications.
• For advice regarding licensing issues
• To receive information regarding unlicensed activity,
• To hear concerns from traders regarding the regulatory
60 > 7.0 Interaction with government agencies
Some traders noted that some of this information was The focus groups in late July and August followed
already available in CAV’s Annual Report. However, they shortly after a VicRoads fee increase, which became
said this was not sufficient and that traders should be effective from 1 July. Many traders expressed frustration
provided with this information directly (and not just and displeasure with the way this increase was
through the VACC). communicated to traders, saying that they were not
notified of the change until August. A couple of traders
mentioned that VicRoads used to hold seminars to
Recommendation 33 explain the various forms and fees, particularly when
they changed, and that these seminars were a good idea
That CAV examine its communications strategy and should be held again.
with traders and identify ways in which Traders were also dissatisfied with the amount of time it
communication might be improved. takes VicRoads to process registration transfers. They said
that delays could have implications for both traders and
consumers because fines, letters, registration renewals
and other mail relating to the vehicle could be received
during this time. Some traders, particularly near the
NSW border, compared the level of service to that
offered by the Road Transport Authority in NSW, which
they said processed transfers much quicker.
Although not directly related to the Act or its
Traders expressed concern that consumers did not
implementation, at each of the focus group meetings,
receive any notification when the transfer is processed
traders raised issues regarding their dealings with
by VicRoads. They said without such notification,
VicRoads. These issues and concerns are noted here and
consumers could assume it had been done, where in fact
it is recommended they be passed on to the Minister for
it hadn’t and as a result they could be driving an
Transport for his consideration.
unregistered car. However, a notification system would
Trading in motor cars requires frequent contact with only alert consumers to the traders’ failure to register the
VicRoads for the transfer of vehicle registrations and the transfer if the trader had told them to expect such
payment of associated stamp duty, which VicRoads notification and explained what to do if they did not
collects on behalf of the State Revenue Office (SRO). receive it. One trader wrote that VicRoads used to mail a
VicRoads also administers the Vehicle Securities Register, receipt for the transfer of the vehicle to the purchaser,
which as discussed above, traders use to check security which clearly stated from whom the vehicle had been
interests in vehicles. Therefore, interactions with purchased, but noted this had been stopped as a cost-
VicRoads are important to traders. cutting measure. The trader also noted this would reduce
The main concerns of traders related to general customer backyard trading by highlighting any intermediary
service and communication with traders. For example, transfers backyarders tried to use to avoid detection.
traders said they spent too much time waiting in queues Stakeholders also said that a traders’ failure to process
at VicRoads offices trying to lodge transfer forms. Given transfers (requiring payment of fees and stamp duty) was
that they collect stamp duty for VicRoads (or more one of the first indications that a trader was having
correctly, the SRO) without any reward, they said financial difficulties. They argued that a notification
VicRoads should treat them better and recognise they scheme could help detect traders in financial difficulty
had businesses of their own to run and that they could and that VicRoads was in a position to notify the
not afford to spend time in queues. Suggested Business Licensing Authority, which could then impose
improvements included allowing traders to lodge more a condition on a licence to provide a bank guarantee.
than three transfers at a time and establishing a ‘fast Many traders said that greater cooperation between
track’ lane for traders’ use only. VicRoads and the Authority could limit the number of
claims made against the Fund.
7.0 Interaction with government agencies > 61
On a similar issue, some traders criticised the current
system of registration renewals where it is possible to put
a new registration sticker on a vehicle without paying Recommendation 34
the registration. They noted that although they could
check security interests on a vehicle through the VSR, That the points raised in relation to VicRoads be
VicRoads does not provide any information on whether forwarded to the Minister for Transport for his
a registration has been paid. As a consequence, they said consideration.
it was possible for them to purchase a trade-in vehicle
that has a current registration sticker and on-sell it to a
customer, without the registration actually being valid.
Another comment that was made in relation to
VicRoads was that some of the fees it charged were too
high. For example, a duplicate registration label cost
$13.50, which at least one trader said was excessive. A
further suggestion coming from traders was that
registration fees should be suspended while a car is in a
62 > 7.0 Interaction with government agencies
7.3 State Revenue Office
The State Revenue Office (SRO) has an interest in motor
car trading due to the motor vehicle duty (stamp duty)
that is paid upon the registration or transfer of a vehicle.
As noted above, stamp duty is collected by VicRoads so
traders do not have any direct contact with the SRO.
However, stamp duty is an issue that was raised
throughout the consultations and the issues are noted
here for referral to the Treasurer for consideration.
Stamp duty is calculated based on the ‘dutiable value’ of
the vehicle, which means either the price paid for the
vehicle or its market value, whichever is higher. If GST is
applicable, it is included in the price of the car. There are
different rates of stamp duty payable depending on the
dutiable value and whether the car is new or used. The
current rates are shown in the following table12
Vehicle type Value of vehicle Stamp duty rate
New passenger vehicle $0 – $35 000 $5.00 per $200 of the market value or part thereof
New passenger vehicle $35 001 – $45 000 $8.00 per $200 of the market value or part thereof
New passenger vehicle $45 001 upwards $10.00 per $200 of the market value or part thereof
New non-passenger vehicle or motor cycle All values $5.00 per $200 of the market value or part thereof
Used vehicle All values $8.00 per $200 of the market value or part thereof
During the consultations, traders suggested two possible
changes to the above rates.
1. The different rates be replaced with a single rate. 2. Increase the rate of stamp duty where a car is sold
This would simplify the system and remove some of privately. Traders said this would counteract the
the incentive for ‘dodgy deals’ surrounding recorded competitive advantage that private sellers had over
prices and values that occur under the present system traders as a result of the GST. However, it was also
in order to reduce stamp duty. Of course, any charge noted that this would just increase the incentive for
calculated as a rate or percentage of value creates private sellers to record a lower sale price. Different
incentives for a lower value to be recorded. Traders rates suggested included 5 per cent or 10 per cent.
said that most cars sold are subject to the lowest rate
of stamp duty (2.5 per cent) so a single rate of around
3 per cent applying to all vehicles would provide
roughly an equivalent amount of revenue.
12 Taken from the VicRoads website at www.vicroads.vic.gov.au (accessed on 4 November 2004).
7.0 Interaction with government agencies > 63
Many traders said there was currently a huge gap in A number of traders also raised concerns with the
revenue that the government was missing out on as a ‘tax-on-tax’ effects of stamp duty, saying it was unfair.
result of the undervaluation of cars to VicRoads. For example, stamp duty is calculated based on the
However, a number of traders questioned these value of the car, which includes GST when sold by a
assertions, saying that VicRoads currently used the business with an ABN. Also, one trader noted that
Glass’s guide as an indication of vehicle valuation and the stamp duty traders collect goes into their bank
queried transfers where the vehicle was significantly accounts and debit taxes are paid on this money.
undervalued. Nonetheless, a number of suggestions were He thought this was unfair considering this was not
made to improve the accuracy of valuations provided to money he was able to keep but was merely money he
VicRoads. These included: was collecting on behalf of the government (a task
• The establishment of accredited stamp duty for which he does not receive payment). However, it
assessment centres where new owners who is noted that debit taxes will be abolished from
purchased their car privately would have to take 01 July 2005, so this will not be an issue beyond this
their car in order to get an assessment of the car’s date.
value prior to transferring the registration.
Although it was recognised there would be a high
cost involved, it was put forward that the increase
in stamp duty would more than offset the costs of Recommendation 35
the centres. If owners had to provide the name of
That the points raised in relation to stamp duty be
the person they purchased the car from, this would
forwarded to the Treasurer and Minister for Finance
also identify backyard traders.
for consideration as appropriate. In particular, it is
• That stamp duty payments be calculated based on
thought that the idea of establishing an assessment
the Recommended Retail Price (RRP) for new cars
centre has some merit.
and the current valuation in the Glass’s Guide (or
similar publication) for used cars. This would allow
stamp duty calculations to be computerised and
any errors or underpayments to be detected with
perhaps a monthly audit.
64 > 7.0 Interaction with government agencies
Motor Car Traders
The Act establishes the Motor Car Traders’ Guarantee The Fund grants claims only to persons who have
Fund. The purpose of this Fund is to provide incurred a loss as the result of dealing with a licensed
compensation for persons who suffer loss by reason of trader or where, on reasonable grounds, the buyer
the actions of licensed motor car traders and to pay for thought the seller was a licensed trader. The Regulations
the administration of the licensing scheme. establish the maximum claim that may be paid out of
The Fund primarily receives revenue from licence fees as the Fund to any one person in relation to one matter.
well as fines imposed under the Act and any interest This maximum amount is currently $40 000. Maximum
earned through investment of monies held by the Fund. limits are set in order to protect the viability of the
It is used to meet the costs of administering the Fund.
regulatory scheme and to pay claims to consumers for The Motor Car Traders Guarantee Fund Claims
certain losses incurred as a result of motor car traders’ Committee (the Committee) is an independent statutory
actions. The Fund acts as an avenue of last resort for loss
authority established under the Act to determine claims
recovery to any person (other than a motor car trader,
for compensation. In determining claims, the
financier13, manufacturer or related company) who may
Committee’s aim is to balance the protection of the
make a claim against the Fund for losses incurred as a
Fund against unsubstantiated claims, against the
result of a motor car trader failing to:
provision of a quick and informal method for genuine
• comply with specific provisions of the Act
complainants to access compensation.
• transfer good title to a car
• comply with an agreement to pay the purchase The Committee noted that it encourages persons
price to a person who sold a car to the trader or to enquiring about making a claim to attempt to first
remit all, or part, of the purchase price to another resolve the problem with the trader concerned. They
person might do this independently or may seek assistance
• pay transfer fees, registration fees or stamp duty on from the dispute resolution branch of CAV. Once a claim
a new or unregistered car or to provide a is made, the Committee continues to encourage
roadworthy certificate or other document required resolution of the dispute throughout the claims process,
to enable the car to be registered which often results in a claim being withdrawn prior to
• remit money paid to the trader as a premium or determination by the Committee.
purchase price for an insurance policy or warranty Where a determination is made by the Committee, any
to the person who was to provide the insurance or person whose interests are affected by a decision of the
warranty, or Committee may apply to the Tribunal for a review of the
• satisfy a court order, order of VCAT, or order made decision.
by the Authority for a licensee to pay compensation
to persons losing money arising from the licensee’s
trading in motor cars.
13 However, there are limited circumstances in which a financier can make a claim against the Fund.
8.0 Motor Car Traders Guarantee Fund > 65
In 2003-04, 171 claims totalling $649,782 were admitted Apart from paying claims, money in the Fund is also
against the Fund. Of this amount, $246,457 has been used to cover the costs of administration of the licensing
recovered from the traders involved. In total, 307 claims scheme. The following table shows the revenue and
were made on the Fund during the year. However, 44 expenditure items for the Motor Car Traders Guarantee
claims (with a value of $250,729) were refused, and 92 Fund in 2003-04.14
claims (worth $1 058 622) were withdrawn. The total
It can be seen from these figures that in 2003-04
number of claims on the Fund has increased
expenditure exceeded revenue. This was also the case in
significantly in the past couple of years. For example,
2002-03 and the equity in the Fund is diminishing.
only 84 claims were finalised in 2000-01, and only 65 in
During the consultations, the level of equity in the Fund
was raised and concerns were expressed that it was no
By far the majority of complaints admitted in 2003-04 longer sustainable or adequate to meet future claims.
(75 per cent) arose from a trader’s failure to pay stamp
Despite the availability of revenue and expenditure
duty or transfer and registration fees, or to provide a
information in the Annual Report, some traders
roadworthy certificate. However, these claims
criticised the accountability of the Fund. They said
represented only 18 per cent of the amount paid. In
information on revenue and expenditure should be
contrast, 39 per cent of the money paid was a result of
provided to traders directly, and Consumer Affairs
19 claims that traders had failed to pay the purchase
Victoria and the Business Licensing Authority should
price of a vehicle to a person who sold the vehicle to the
not rely on distribution by the VACC or through
trader, or to remit the purchase price to another person.
Consumer Affairs Victoria’s Annual Report.
A further 11 claims, representing 21 per cent of total
money paid, related to traders’ failure to transfer good Apart from information on the figures involved, traders
title. also said they would like information on the
circumstances that result in claims against the Fund.
Some traders expressed a perception that only relatively
new licensees are involved in claims against the Fund.
Such perceptions were used to justify some of the
Licence fees $2,314,916
suggestions outlined above, including the payment of
Fines $30,020 bonds and higher licence fees for those with less
Investment income $70,189 experience in the industry. Also, there were perceptions
that certain types of traders had more claims admitted
Recovery of claims paid $240,137
against them than others. Few traders seemed to be
Other income $3,402 aware that information about the admission of a claim
has to be included in the public register of motor car
Total revenue $2,658 664
traders which the Authority is required to maintain, and
which is available on the Authority’s website.
In a presentation at the Motor Industry Forum in March
$1,422,437 2004, the Chairperson of the Committee, Mr Stuart
Ward, provided summary statistics on the traders against
Community agency funding $164,440
whom claims had been admitted in the three years from
Claims on Fund $659,322 1 January 2001. During this time, the average length of
$554,750 time that a licence was held before a claim was admitted
Other CAV operating costs
was 8.5 years.
Total expenditure $2,800,949
Fund closing equity $972,029
14 The Committee is not responsible for administering the Fund. The figures in this table were provided by Consumer Affairs
Victoria. The figures in the text were provided by the Committee and are based on the number of claims finalised in the year.
The figures in the table are based on revenue and expenditure entering and exiting the Fund in the year, not on when claims
were finalised. This may result in discrepancies in some of the figures.
66 > 8.0 Motor Car Traders Guarantee Fund
Further, a third of claims were admitted against traders
who held a licence for greater than ten years, and a third
8.1 Issues raised during the
against traders with between five and ten years consultations
experience. This indicates that, contrary to many traders’
opinions, the majority of claims are admitted against
The main issue raised in relation to the Guarantee Fund
‘established’ traders rather than new licensees.
regarded who could make a claim against the Fund.
Of the claims admitted in the three years since 1 January Specifically, the VACC, individual traders and the
2001, almost three quarters of the traders against whom Committee raised the issue of VicRoads and other entities
claims were admitted, were either franchise dealers or dealing with traders in the normal business sense being
traders operating dedicated retail yards. Only 9 per cent able to claim against the Fund.
of traders whom claims were admitted against, carried
The Act provides that ‘Any person (not being a motor
on a mixed business involving wrecking or repairing cars
car trader or a special trader) may make a claim against
in addition to motor car trading, and claims against
the Fund’ if they have incurred loss as a result of a
these traders represented only 3 per cent of the amount
trader’s failure to comply with the Act or to do specified
paid out of the fund.The admission of a claim against
things. As noted by the Committee, the current wording
the Fund has serious implications for traders. Under the
of the Act leaves the claims process open to trading
Act, the admission of a claim against the Fund results in
entities (other than motor car traders and special traders)
automatic suspension of the relevant trader’s licence
who deal with motor car traders on a commercial basis.
within 30 days of the claim being admitted, unless the
This enables VicRoads to make a claim against the Fund
trader applies to the Authority for permission to
in circumstances where a trader has failed to pass on
continue trading, and such application is allowed. In
transfer fees or stamp duty that they have collected on
order to grant permission, the Act requires the Authority
behalf of VicRoads and the State Revenue Office.
to be satisfied:
• that the trader has refunded, or agreed to refund, all In a case before VCAT in 2000, the Committee
the amounts paid out of the Fund in respect of the submitted that the phrase ‘any person’ should be
claim, and interpreted in light of the purpose of the Fund to protect
• that, having regard to the conduct of the trader consumers and that if the Fund was available to protect
before and after the claim, there is no reasonable (insure) persons in the trade it would be exhausted
expectation that the person will not comply with quickly. Althought VCAT accepted that the intent of the
the Act and the regulations in the future, and Act was to limit claims to consumers, it nevertheless
held that the words 'any person' were sufficiently broad
• that the granting of the application is not contrary
to cover VicRoads. The Tribunal held that VicRoads had
to the public interest.
suffered the required loss as a result of the failure of a
In addition to suspension of their licence, the trader is trader to pay transfer fees and stamp duty and was
also prohibited from working for another trader in a therefore entitled to make a claim against the Fund.
customer service capacity without the permission of the
The VACC and individual traders submitted that it was
Authority. Traders may also face enforcement action by
inappropriate for VicRoads to claim against the Fund
CAV, and the Authority may impose conditions on their
and this was contrary to the intention of the legislators
licence (if this is not suspended), such as a requirement
when the Act was introduced. The VACC claimed:
to provide a bank guarantee.
There is no valid business reason why VicRoads or any
During the consultations, the Authority and the
other Statutory Authority should have access to the Fund.
Committee noted that when a claim is admitted against
VicRoads acts as an agency of the Government and makes
a company or partnership licensee, it is unclear what
no contribution whatsoever to the Fund.
impact this claim has on the individual directors or
partners. For example, are they precluded from working
in the industry in a customer service capacity or a role
concerned with the management of a motor car trading
business without the permission of the Authority?
8.0 Motor Car Traders Guarantee Fund > 67
A ramification of VicRoads having the ability to claim Under s. 76(2), financiers are also able to make a claim
against the Fund is that VicRoads may have a reduced against the Fund where they suffer loss as a result of the
incentive to monitor transfers and payments of stamp trader failing to cancel a security interest as required
duty by traders. Several traders said that VicRoads were under the Act. The Australian Finance Conference noted
currently in a position to avoid, or at least minimise, that if the financier were not able to make a claim
their loss by chasing up traders who were in arrears. against the Fund, the financier’s only option would be
to encourage the innocent consumer who the trader has
If VicRoads can recover losses from the Fund, then this
on-sold the car to, to make a claim against the Fund and
may be an easier and less costly way of recovering funds
then pay out the financier. Therefore, s. 76(2) represents
than monitoring and pursuing traders directly.
a procedural saving for the financier and avoids further
The Committee suggested that if the purpose of the inconvenience for the innocent consumer. The
Fund is only to protect consumers, this should be Conference supported the retention of this provision.
specified clearly in the Act. Alternatively, the Committee
The Committee also commented on this provision. It
said consideration should be given to:
suggested an amendment to the section providing that
• excluding VicRoads and similar organisations
such a claim may be refused if the financier has not
(statutory authorities) from being able to make a
given notice to the Director of Consumer Affairs as
required by s. 49.
• excluding persons from being able to claim in
circumstances where a motor car trader receives Other than the ability of VicRoads (and other statutory
money as agent (or delegate or in any other authorities) to claim against the Fund, and the limited
authorised manner) for that person discussion of a financier’s ability to claim, traders did not
• excluding persons from being able to make a claim raise any other issues relating to the Fund. However, a
where they would reasonably be regarded as a number of issues were raised by the Committee as set
motor car trader, but for the fact that the out over the following pages.
transactions in which they engage are exempt from
the definition of trading in motor cars under s. 3(3). 8.1.1. Section 76(1)(f)
The Committee suggested that it be given standing to
apply to set aside a court or VCAT order made against a
Recommendation 36 motor car trader. It said this standing could then be
That the purpose of the Fund be reviewed. If the ‘circumstances where it has information suggesting that
intended purpose is only to compensate consumers, the court order was based on incorrect or incomplete
consideration should be given to the above information and where the trader against whom the
amendments suggested by the Committee. However, order is made has no interest or ability to defend the
if the intended purpose is to compensate all persons action’.
who suffer loss, then no legislative amendment is
In the alternative, the Committee put forward that
necessary but consideration will need to be given to
section 78 – which prevents a second claim being made
increasing the amount in the Fund.
against the Fund in relation to the same matter – be
extended to apply to the situation where a claim has
been refused and a default order obtained on the same
This section allows persons to claim against the Fund if
they have incurred a loss as a result of a trader failing to
satisfy a court order or an order of the Tribunal. For
example, the Tribunal may have ordered a trader to pay
compensation to a consumer, which the trader has not
done. This consumer may then apply to the Fund to
recover the amount owed to them by the trader.
68 > 8.0 Motor Car Traders Guarantee Fund
The Committee expressed concern about possible misuse 8.1.4 Failure to return a deposit as a
of this provision by persons whose claims are refused on
new ground for a claim
merit, who then obtain a default order from a court and
lodge another claim under s. 76(1)(f). In such The Committee recommended that a new ground for a
circumstances, there is no scope for the Committee to claim against the fund be included in the Act. Under
consider the merits of the court’s default judgment, it is this ground, persons who have suffered loss as a result of
sufficient to allow the claim on the mere existence of a trader failing to return a deposit (and any other
the default order. Therefore, there is potential for payment) where the contract is terminated and/or the
claimants whose claims are refused on merit to still trader agrees to refund the whole, or part, of the deposit
receive a payment from the Fund. (and/or other payment) but doesn't.
8.1.2 Section 76(1)(b) 8.1.5 Section 76(1)(a)
This section allows persons to claim against the Fund if The Committee pointed out a technical error in this
they have incurred a loss as a result of a trader failing to section with the word ‘and’. Where it appears between
transfer a good title to a motor car. sections 54(2C) and 56(2), it should be replaced with the
The Committee recommended clarifying when a failure
to transfer good title has occurred. It suggested that a
failure to transfer good title can occur by –
8.1.6 Section 76(1)(d)
• not delivering a car that was paid for (as opposed to The Committee said that the current wording of this
the car that was delivered not meeting the section leaves some confusion about whether a trader’s
description of the car that was purchased) failure to pass on stamp duty to VicRoads is covered,
• the car being subject to a registered security interest, where this stamp duty is paid to the trader for the
and transfer of a registered (used) motor car.
• the car being a stolen car. Also, the Committee would like some clarification in the
Act of what is encompassed by ‘registration fees’ and
8.1.3 Time limit on claims ‘transfer fees’.
The Committee recommended that a time limit for The Committee also requests that it be made clear that
making a claim on the Fund be introduced. It suggested the Committee does not have jurisdiction for the
a time limit of: validity of a roadworthy certificate (as opposed to
• two or three years from the transaction giving rise whether one is provided).
to the loss (for claimants other than finance
• 12 months from the transaction giving rise to the
loss (in the case of finance companies).
In the alternative, the Committee suggested that it be
given ‘a discretion to refuse a claim if there has been an
unreasonable delay by the claimant in making the claim
and to enable the Committee to take the delay into
account in determining a claim’.
8.0 Motor Car Traders Guarantee Fund > 69
8.1.7 Section 76(4) 8.1.9 Conduct of hearings
The Committee posed the following questions in Although the Act does not specifically require the
relation to the operation of this section: Committee to conduct a hearing when determining
• What is the amount the ‘trader should have claims, the Committee would like the Act to specify that
remitted’ – the amount specified in the contract at it is not required to conduct such hearings.
the time of purchasing the trade-in car, the amount
required to discharge the security interest when the 8.1.10 Power to require information
trader sells the car, or the amount outstanding at
The Committee recommended that a provision be
the time of lodging or determination of the claim?
included in the Act enabling it to require a claimant, a
• Can this prevent a claimant recovering the full
motor car trader or any other person, body or source it
amount paid to a financier after a car is sold, if that
sees fit to provide information relevant to the claim.
amount is more than the amount specified in the
This power would be similar to that given to the
Business Licensing Authority under s. 12(1)(b) in relation
• Should the Committee be able to authorise to the consideration of licence applications.
payment of all amounts lost by the claimant, even
if they exceed the original pay-out amount In addition, the Committee suggested that:
identified in contract? • failure of the claimant to provide the required
• What if the contract pay-out amount is described as information within a reasonable time entitle the
being an approximate amount, or not specified? Committee to refuse the claim, and
• What is the situation for financier claims? • failure by the trader to provide the required
information within a reasonable time entitle the
• Should it be extended to cover situation where a
Committee to admit the claim against the trader.
trader purchases car on understanding finance
agreement to be paid out but trader goes into
liquidation before selling car (that is, there has been 8.1.11 Power to postpone a
no failure to procure cancellation of security determination
interest in accordance with section 48)? (Should
The Committee recommended that a provision be
section 76(4)(e) be repealed? What if the trader does
inserted into the Act allowing it to postpone a
not sell the car, and therefore there is no breach of
determination of a claim for such a period as it considers
section 48? Or should 76(4)(e) be optional?)
necessary. It suggested circumstances that may give rise
to a postponement may include:
8.1.8 Section 76(2) • where there are related court proceedings pending
Financiers are currently able to make a claim against the • where the status of the subject car may change
Fund for loss incurred from the failure of a licensed • where there is a reasonable expectation of the
motor car trader to procure the cancellation of a security resolution of the claim, and
interest in a motor car that is registered under the Chattel
• where the Committee gives a preliminary view that
Securities Act 1987, with the exception of an inventory
the claim will be admitted unless resolved by the
The Committee recommended extending the exemption
for inventory security interests to 8.1.12 Power to request reports
also cover a finance contract with respect to a car entered The Committee suggested that a provision be inserted
into by a director of a company motor car trader (unless into the Act enabling it to request a report from CAV,
satisfied that the financier did not know the person was a the Business Licensing Authority, VicRoads and/or the
director of the motor car trader company). police.
The Committee also recommended repealing s. 76(3)
which currently requires a financier claim to be made in
the prescribed form and verified by statutory declaration.
70 > 8.0 Motor Car Traders Guarantee Fund
8.1.13 Clarification of use of The Committee noted that, in NSW, a claim cannot be
admitted unless the claimant has ‘… taken all reasonable
steps to exercise such legal remedies and other rights of
The Committee suggested it be clarified that: action available in respect of the loss incurred by the
All information provided to the Committee with respect to claimant’ (s. 40(4) Motor Dealers Act 1974 (NSW)).
a claim may, in the discretion of the Committee, be
disclosed to the claimant, the motor car trader and any 8.1.15 Reasons for determination
other person the Committee considers it necessary to
Currently, under s. 71 any person may request a copy of
release the information to (eg. police, VicRoads, Consumer
the reasons for a determination of the Committee. The
Committee suggests this be limited to persons whose
interests are affected, in order to be consistent with the
8.1.14 Conduct of the parties right of review.
The Committee recommended that a provision be
inserted into the Act enabling it to take into account the 8.1.16 Quantum
conduct of the parties when determining a claim. For
The Committee recommended that the Act be amended
example, where a trader disputes they were involved in
to specify that, in determining the quantum of a claim
the transaction, the Committee suggests it be able to
to be paid, the Committee may take into account such
take into account (and base a decision on) the following
matters as it thinks fit, including the claimant's use of
the car, and wear and tear caused to the car as a result of
• the trader was the registered operator of the car the claimant's use of it.
• the trader is identified in the contract or other
The Committee also suggested clarifying that, ‘for the
document such as a finance agreement or invoice
purposes of determining the quantum of a claim, the
(by name or LMCT number) as the vendor or
loss incurred by a claimant is restricted to the direct loss
supplier of the car
on the transaction, which does not include:
• the trader (by action or omission) facilitated or
• legal costs
ratified the transaction in a manner that would give
• consequential loss (such as car hire expenses, loss of
the impression that it was a party to the transaction
income or fines incurred)
(such as, by allowing a person to hold out that they
are associated with or employed by the trader, or • loss arising from any improvements made to the
that a car being offered for sale privately is a car car after it was purchased from the trader, or
that is owned or being sold by the trader) damages for stress.’
• the trader allowed (or did not take sufficient action The Committee noted that the admission of a claim
to prevent) an unlicensed person using the trader's does not prevent entitlement of claimant pursuing legal
LMCT number or otherwise representing action against trader for such losses in court.
him/her/itself as, or as being associated with, the
licensed motor car trader. 8.1.17 Name and status of the
Further, the Committee recommended that Committee
‘consideration should be given to whether the
The Committee asked that consideration be given to
Committee should be able to admit a claim against the
changing the name of the Committee to one that is less
trader unless it is satisfied that the trader did not sell or
deal with the car’.
Further, the Committee asked for clarification regarding
The Committee also suggested that it be able to take
whether it was able to take legal action in its own name,
into account the conduct of a claimant. In particular,
despite not having a separate status recognised by
whether the claimant has contributed to their own loss
statute, or whether legal action must be taken in the
and whether they have made a reasonable attempt to
names of the members of the Committee.
recover from the trader.
8.0 Motor Car Traders Guarantee Fund > 71
8.1.18 Proof of debt owing by trader 8.1.21 Application by Committee for
The Committee recommended that the following be imposition of conditions on
clarified in the Act: licence
Subject to the Committee's decision being reviewed, a The Committee recommended that the Act be amended
certificate issued by the Secretary to the Committee to enable it to apply to the Authority for the imposition
attesting to the payment of a claim against a motor car of conditions on a trader's licence, including that the
trader to be sufficient proof of a debt owing by the trader Authority impose a condition requiring the licensee to
for the purpose of any recovery proceedings initiated by the lodge a guarantee in favour of the Committee.
Committee against the trader.
8.1.22 Extension of section 50A
8.1.19 Timing of payment from Fund The Committee suggested extending
The Committee requested the Act be amended to
‘section 50A(1)(b) to cover an offence of aiding or abetting,
provide it with discretion to delay payment of a claim to
or causing or permitting a licensee to carry on business as
a claimant for 28 days following its determination to
a motor car trader in breach of a condition on the
allow a trader to seek a review of the decision. Where an
licensee's licence (for example, a trader or person who
application is lodged, the Committee suggests it be able
assists a wholesale trader to deal directly with members of
to postpone payment until the outcome of the review.
However, if a trader initiates a review application, they
must provide evidence to VCAT of the availability of
funds to cover the claim if the review is not successful.
Without the ability to postpone payment pending an
appeal, should the trader win the appeal, the Committee
would have difficulty recovering the claim already paid
to the claimant.
8.1.20 Abeyance of claim where an
application for rescission is
Section 45 of the Act sets out a number of situations in
which a consumer can apply to a Magistrates’ Court for
an order rescinding an agreement for the purchase of a
vehicle. Subsection 45(5) provides that where such an
application is pending, the consumer cannot make a
claim against the Fund for any loss arising from the
same circumstances. This prevents a consumer from
effectively double-dipping by receiving a claim from the
Fund as well as having the contract rescinded.
The Committee recommended the extension of this
subsection, or the insertion of a new section, to allow
the Committee to hold in abeyance any claim where the
enforceability of the contract leading to the claim is the
subject of legal proceedings.
72 > 8.0 Motor Car Traders Guarantee Fund
The Motor Car Traders Guarantee Fund is one avenue by In addition to enquiries and complaints received by
which consumers can seek redress for loss suffered as a Consumer Affairs Victoria, community agencies such as
result of dealings with a motor car trader. As indicated legal centres and financial advisory services also receive
by the number of claims that are withdrawn prior to a complaints and assist consumers in resolving disputes
determination by the Motor Car Traders Guarantee Fund with motor car traders. The VACC also submitted that it
Claims Committee, the Fund also has an important role assisted in settling disputes between traders and
in dispute resolution. Claims may be withdrawn for a consumers. The RACV also operates a Motor Advisory
number of reasons, including that the matter has been Service which consumers can call for advice.
resolved between the consumer and the trader, or
Owing to the large number of complaints received by
because the consumer gains an increased understanding
community agencies in relation to motor car traders, the
of their rights and realises their claim will not be
Consumer Law Centre (CLC) has called for the
successful. There is, of course, an incentive for traders to
establishment of an industry ombudsman to deal not
resolve disputes prior to a determination, owing to the
only with motor car traders but repairers as well.
adverse consequences on their licence of a claim being
However, it noted that most of the complaints it
admitted against them.
received regarding the industry related to motor car
As discussed above, a claim can only be made against traders. The CLC observed that industry ombudsman
the Fund where the conduct falls within one of the schemes provided free, fast resolution of complaints and
specified grounds. Most of the grounds on which a identification of recurrent or system-wide problems. It
claim can be based relate to obligations on traders suggested licensees could be required to be members of
imposed under the Motor Car Traders Act and to pay an industry dispute resolution scheme through the
associated stamp duty and registration or transfer fees. imposition of a condition on their licence.
However, traders also have obligations under the Fair
As part of the consultations, the RACV submitted a
Trading Act. Offences under the Fair Trading Act include
paper prepared by the CLC to support its calls for an
engaging in misleading, deceptive or unconscionable
industry-based dispute resolution scheme. In this paper,
conduct, making false representations and harassing or
the CLC compiled data from a sample of five
community agencies that receive and deal with
In 2003-04, Consumer Affairs Victoria received almost complaints from consumers relating to motor car
7,000 enquiries and around 500 written complaints traders. Between the five agencies, over 400 complaints
from consumers in relation to motor car traders. These had been received within a 13 month period, which the
represented around 3 per cent of enquiries and 7 per CLC noted represented only a handful of the 115
cent of complaints during the period. community financial counselling services and 40
community legal centres across Victoria.
9.0 Dispute resolution > 73
The CLC reported that the types of complaints received Although the VACC suggested that, given the size and
indicated there were five main issues relating to disputes nature of the transactions in the industry, the level of
with motor car traders: complaints was low, it did say that improvements could
• Misleading and deceptive conduct on the part of be made to the dispute resolution process between
the trader – including false statements about the traders and consumers. It called for the establishment of
quality of vehicles or consumers’ rights in relation a Motor Car Trading Disputes Resolution Committee with
to warranties and cooling-off periods. the power to hear, conciliate and assist customers and
• Unconscionable conduct – where the trader has traders to resolve disputes, without the expense of time and
taken advantage of a vulnerable characteristic of the the cost of either attending VCAT or alternatively, a
consumer such as age, lack of business skill, Magistrate’s Court.
intellectual disability, or a culturally or linguistically
The VACC submitted that disputes could be handled
diverse background, and the contract is
better by an industry body with people experienced in
disadvantageous to the consumer.
the industry and who understand the trade and the
• Harassment and coercion – for example where a
mechanical aspects involved. However, the VACC
trader uses threats to prevent a consumer cancelling
suggested that many disputes could be avoided
a contract, even where they are exercising their
altogether through the provision of information to
rights under a cooling-off period.
traders and consumers. Information to traders could
• Car finance and/or insurance – where traders
include customer service tips and further information on
arrange finance or insurance without the customer
their legal obligations, while consumers could benefit
fully understanding the agreement.
from more information regarding their rights and
• Lack of consumer awareness of contractual rights obligations, particularly in relation to warranties,
and obligations – particularly in relation to cooling- insurance and cooling-off periods.
off rights and warranties.
The RACV submitted that an industry specific dispute
In the report, the CLC outlined several case studies resolution scheme should be established owing to the
experienced by the various agencies, which provided adverse impacts such disputes can have on consumers.
examples of these issues. Although most of the case The purchase of a car, whether new or used, tends to be
studies seem to have been resolved (either through the second-largest purchase a consumer will make, after
negotiation with traders or through VCAT), the CLC the purchase of a house. If something goes wrong, in
argued that current dispute resolution mechanisms were addition to direct financial expenses relating to the car,
inadequate. It recommended ‘research should be there may also be costs associated with breakdown
undertaken into the viability of an independent industry services, transporting a car to a repairer, and even loss of
dispute resolution scheme to cover complaints against income where a vehicle represents the sole means of
motor car traders and, potentially, repairers’. transportation to a job.
It claimed that dealing with motor car trader disputes
was time consuming and resource intensive for
community agencies, which generally do not have the
technical or mechanical expertise to assess claims Recommendation 37
regarding the quality or condition of vehicles. It also
noted that conciliation (through CAV) is often The ways in which consumer and trader disputes
inappropriate for such disputes as the traders and are currently resolved should be examined to
consumer’s knowledge and bargaining positions are so determine their effectiveness and adequacy, and
imbalanced. In addition, it observed that resolving options for improvement should be considered,
disputes through VCAT may involve long delays and including the establishment of an industry-specific
significant cost, particularly where expert evidence is dispute resolution scheme.
74 > 9.0 Dispute resolution
The financially (and sometimes physically and
emotionally) devastating effects that a car purchase can
have on a consumer were illustrated by a number of
consumers who participated in the consultation process.
These effects appear to be greater when a consumer’s
complaint involves repeated repairs under a new car
warranty, or more colloquially, ‘a lemon’. One consumer
who made a submission to the consultations indicated
that, owing to his regional location, he had travelled
over 1800km in a 6-week period in order for repairs to
be undertaken to his new vehicle under the
manufacturer’s warranty. During this time, he had also
been without his vehicle for 12 days.
Another consumer told how her new vehicle had cost
her career and health. She said it was impossible for
consumers to enforce new car warranties given the cost
of bringing an action in court (VCAT’s jurisdictional
limit is $10 000) and the extremely unequal bargaining
power of the consumer and the multi-national car
The RACV and CLC also gave examples of consumers
who had had great difficulty resolving disputes with
traders and/or manufacturers in relation to lemon
Consumer protection in relation to new car
warranties and ‘lemons’ is an area that requires
further investigation, particularly given the large
amounts of money involved and the unequal
positions of consumers and vehicle manufacturers.
Such an investigation could occur in the context of
a broader examination of ‘lemon laws’ and their
possible application to other types of products as
well as cars.
9.0 Dispute resolution > 75